March 31, 2011, 2:14 a.m. EDT

Gold, oil can gain as unrest eases: Brynjolfsson

Fund manager says gold should rise to $2,000 within a year

By Claudia Assis, MarketWatch

SAN FRANCISCO (MarketWatch) — The unrest sweeping through the Middle East is already priced into oil, says hedge fund manager John Brynjolfsson, who says he likes the commodity more for long-term supply pressures than the recent shocks hitting oil-producing nations.

In the long run, depletion of oil fields will combine with increased global industrialization to make his firm “not optimistic that supply will satisfy demand at current prices,” said Brynjolfsson, managing director of hedge fund Armored Wolf, LLC in Aliso Viejo, Calif., in an interview.

Armored Wolf

John Brynjolfsson

“Our long term bullish view, does not warrant [an] even more bullish view than what is currently priced into the market, merely because of [Middle East] unrest,” he said.

Brynjolfsson, who also runs the mutual fund Eaton Vance Commodity Strategy Fund /quotes/comstock/10r!eacsx (EACSX 11.41, +0.01, +0.09%) and is one of a recent crop of institutional investors who favor gold, opened his own firm after spending nearly two decades at Pimco, where he managed some of the bond giant’s top funds. Armored Wolf has nearly $600 million under management.

For gold, rewards could come a bit more quickly. He says gold should rise to $2,000 within a year.

“I don’t see gold as having a high price at all, not in the low interest rate environment we are facing,” Brynjolfsson said.

Some of his picks in commodities-related equities include China Petroleum & Chemical Corp., or Sinopec /quotes/comstock/13*!snp/quotes/nls/snp (SNP 100.98, +0.01, +0.01%) , Tenaga Nasional Bhd, Malaysia’s national power producer, Canada’s Aurizon Mines Ltd. /quotes/comstock/11t!e:arz (CA:ARZ 6.79, +0.10, +1.50%) and New Gold Inc. /quotes/comstock/14*!ngd/quotes/nls/ngd (NGD 11.76, +0.11, +0.94%) , and Russia’s state-controlled natural-gas monopoly Gazprom OAO.

In the short term, Brynjolfsson said added oil supply from Middle East nations will likely offset lost supply from conflicts in the region.

There is “no need to panic, or to respond to the current crisis with excessive fears of a change in long term dynamics due merely to the crisis” in the Middle East and North Africa, he said.

Crude-oil futures have gained 14% this year, with the May contract /quotes/comstock/21n!f:cl\k11 (CLK11 106.26, +1.99, +1.91%) closing Wednesday above $104 a barrel, as investors bet anti-government protests that started in Tunisia and then spread to Egypt and other Arab countries -- including Syria, Yemen and Bahrain -- will crimp global supplies of crude.

In Libya, such worries are already a reality. The country is under an international embargo and its oil production ground to a halt as forces loyal to Col. Moammar Gadhafi battled rebels, which control key oil cities in the east.

But Saudi Arabia and other nations have stepped in to fill the gap. Read more on Libya's oil output facing years of disruption.

“I’m actually relatively optimistic about the Middle East and oil producing countries’ capacity to supply oil and help the global economy (to continue to improve),” he said. Global inventories are high, helping manage conflicts and natural disaster shocks, Brynjolfsson added.

Brynjolfsson’s top fund, commanding 2% in management fees and 20% in performance fees with a minimum investment of $1 million, amassed gains of 5.4% in 2009 and 5.4% last year. So far this year, it has lost 0.4%, according to the firm.

His funds invest mainly in commodities, bonds including Treasurys and inflation-linked bonds from various countries, and emerging-market equities, bonds, and currencies.

The Eaton Vance Commodity Strategy Fund had 36% of its holdings in agricultural commodities, mainly soybeans and corn, as of late 2010, according to Eaton Vance’s website.