Raphael Lamm, co-manager of Australia’s L1 Gold Fund, believes the recent decline in gold prices is a temporary setback, with high government debt and continued central-bank demand providing longer-term support for the precious metal, according to a report by Bloomberg.

Lamm and co-manager Mark Landau run the AUD1.5bn ($1.1bn) long-short gold strategy, which has generated a net return of 235% since its launch in February 2025, according to a fund spokesperson.

Lamm said the deteriorating fiscal position of major economies, particularly the US, combined with continued purchases by central banks, should underpin gold over the medium to long term. In the shorter term, he expects bullion to remain sensitive to developments in the US-Iran conflict, real interest rates and inflation data.

Gold has retreated from a record reached in January, with higher energy prices and expectations for further Federal Reserve rate increases weighing on the non-yielding asset. Bullion has fallen by roughly 20% since the US-Iran conflict began in late February.

The L1 Gold Fund combines long positions in gold-mining companies with short gold-futures positions designed to hedge exposure to movements in the underlying commodity. Through August, it had generated a 235% net return since inception, compared with gains of about 148% for the VanEck Gold Miners ETF and 55% for physical gold over the same period.

The strategy has used the recent weakness in bullion to increase its exposure to gold equities. Lamm said the portfolio now has a net long position of between roughly 60% and 65%, after the managers increased exposure more aggressively when gold fell below $4,000 an ounce.

The fund focuses predominantly on larger gold companies, with most holdings having market capitalisations of at least $5bn. It also shorts selected mining stocks that the managers believe are expensive or facing operational challenges.

Lamm said the fund is unlikely to reduce its long exposure unless gold rises sufficiently for the managers’ upside expectations to be realised.

The strategy’s gains have also been supported by stock selection and corporate activity across the mining sector. Its largest holding is Canadian gold producer Eldorado Gold, while the fund is also the biggest shareholder in K92 Mining, which operates the Kainantu gold mine in Papua New Guinea.

Lamm expects further consolidation in the gold-mining industry to create opportunities for the fund, particularly among mid-cap developers that could attract interest from larger producers.

The fund benefited from OceanaGold’s acquisition of Australian miner Ausgold. L1 bought Ausgold shares at around AUD0.50 each, compared with the AUD1.36-a-share price agreed in the transaction, according to an August investor update.

The managers have also increased their own exposure to the strategy. Lamm and Landau participated in an entitlement offer that raised A$160m for the fund in August.

L1 Gold Fund, which listed on the Australian exchange in April, returned 18% net for investors through August despite a 6% decline in gold prices during the period.