Baring finds the Midas touch: Fortune is finally smiling on the prophet of gold. Richard Lander reports

GOLD is back in town and so is Julian Baring. After five years out in the cold, the City's most eloquent and persuasive spokesman for the joys of the precious metal is enjoying being back in the limelight.

He has good reason to. The price of his unit trust, the Mercury Asset Management Gold and General Fund, has more than doubled so far this year.

The fund has been the best-performing unit trust of the month for the past three months, a feat that the debonair, pin-striped Mr Baring believes is unique.

But it was a long and lonely wait. Until the start of this year, the gold price had spent much time going gently down; gold shares fell far more steeply. The fund's price fell 15 per cent in 1992.

'I think of myself as a shepherd, shrieking at sheep to do the opposite of what they want - to sell after a rise and buy after a fall. And the politics of South Africa (the main source of gold) have been terrible.'

The louder Baring shrieked, the faster the sheep ran away. Investors were net sellers of his fund, which was launched under the James Capel banner in 1988, in 33 of the 36 months to the end of 1992.

This year's astonishing success has stemmed from Mr Baring's heavy investment in South African mines. The reefs on the Witwatersrand and under Orange Free State are deeper and more heavily worked than those in North America and Australia. The cost of extracting gold is greater, which means the mines are highly geared - a small rise in the gold price produces a large rise in profits from the mines.

While the rest of the world was bamboozled by the falling dollar price of gold, Mr Baring noticed that it was actually rising in South Africa, thanks to the rotten state of the rand.

Last year, dollar investors saw the gold price fall 5 per cent. In rand terms, it rose 18 per cent. Profits at the most marginal, short-life mines boomed, and so did Mr Baring's fund, which had half of its money there.

'The South African shares were far more oversold than I could have believed possible.'

Other gold funds spread their money more evenly round the world. All have risen strongly since the start of the year but none has come within 20 points of the gain the Mercury fund has registered.

It is all good contrary investment stuff and happily devoid of all the hogwash that pollutes the ramblings of so many gold bugs.

There is no ranting against government deficits, no misty-eyed reminiscing about the gold standard and no talk about a political Armageddon that will render worthless all currencies and make bullion or Krugerrands the only acceptable means of exchange.

As far as gold is concerned, according to Mr Baring, history is bunk, and so is logic. To help to demystify things even more, and unglue investors from their obsession with the dollar price, Mr Baring likes to look at what gold is worth in terms of other staples - most notably the price of dinner at the Savoy. On that basis, gold is cheap at present, thanks to the pound's devaluation.

'It's a metal that rules hearts not heads. People become extra emotional about it and I don't know why.' Just because gold was an inflationary hedge in the 1970s does not mean it will be next time prices start to climb, he says.

'People have a touching faith that history will repeat itself and markets will rise for the same reason twice. They very seldom do but people make the same mistake time and again.'

Mr Baring, 57, has been in and around the mining world since 1956, when he first went to work for Anglo American, the giant South African mining group, in what was then Southern Rhodesia.

An Old Etonian and a Baring of that ilk, he had been offered the same salary, pounds 360 a year, by the family bank - 'on the assumption that all Barings are rich, which I wasn't' - but reckoned the money would go further in colonial Africa'.

Back home after eight years, he joined the mining desk at James Capel, but first saw the light shining from gold in 1970, when the gold price was still fixed at dollars 35 an ounce by the backing given to the dollar by the US government.

'Everyone thought it would stay at dollars 35 for ever. Then David Lloyd Jacobs, editor of the Consolidated Gold Fields gold survey, made the outrageous prediction that it would hit dollars 80 by 1980, such was the pent-up demand from governments and private individuals.

'He believed the Americans would have to close the gold window. I thought this would lead to the biggest boom in gold shares.'

In 1971, President Richard Nixon found the economic cost of convertibility too great to bear and had to cut the dollar-gold link.

But Lloyd Jacobs was wrong. By 1980, gold had surpassed dollars 800, buoyed by high inflation, the Soviet invasion of Afghanistan, and the detention of the US hostages in Iran. Gold shares rose almost 800 per cent over the decade.

The shares lost most of their value in the ensuing slump - as they have done in the four subsequent boom and bust cycles - forcing a nervous Mr Baring into what he calls a catastrophic error.

'I told people to sell after the shares had fallen sharply. I didn't make the same mistake last year when it happened again.'

Mr Baring's fund has at last seen some new money flow in - 'nothing drastic, however' - but he remains optimistic that there is plenty of upside, perhaps another 50 to 100 per cent. Gold shares are cheap compared with those investing in base metals and have actually lagged the bullion price since they touched their nadir in 1971.

But as Mr Baring himself would admit, history may not always be the best guide.

(Photograph and graph omitted)