Over the year, the price of gold moved from 415 to 392 in March before jumping to 427 in April. It then fell to 374 in early May before climbing above 400 to stay in September. October and November saw an advance to a sixteen year high before slipping back to close the year.

Beginning at 5.95, silver reached 8.21 in early April, fell to 5.51 in early May and gradually climbed back up to 8.02 by December. It closed the year at 6.80. Silver stocks gyrated all over the chart.

XAU reached its high of the year, 112.8, way back in January, yet came close in late November at 110.3. By year end, XAU and gold stocks were indicating that gold might fall back, and it did. Meanwhile, 2004 closed with the Dow reaching a three year high over 10,800 and the dollar index falling from 87.16 to 80.85 and the yen rising in value from 107.4 to 102.3 yen per dollar. Once again, as in 2003, almost all other currencies gained against the dollar over the course of the year. The euro gained 8% against the dollar in 2004, closing near a new high, 1.3602.

The Federal Reserve raised the short term rate to 2.25%, but it is still relatively low and has much room to rise further. The long term bond yield closed at 4.82%, with only short attempts to go over 5%.

The housing market kept showing signs of slowing, but still ended the year running at high speed. The average 30 year mortgage was still only 5.84%, the second lowest year end rate ever. With the slightly increasing rates over the last three months, new mortgage applications have decreased, but existing homes sales set another annual record.

The domestic economy cruised as consumers pushed the trade deficit to over $55 billion in October and it shows no sign of decreasing. Meanwhile, jobs are being created and, although prices are going up for basic materials, official inflation is still low. In general, commodities gained in dollar terms, including copper, which was up 39%. The CRB index was up 11%. The price of oil jumped over $50 but settled back to $43 after supplies began to match demands.

China's growth continued to be the driving force behind the climb in commodity prices, yet there were some signs that prices were about to correct downward as inventories increased.

Currency inflation fueled many economic booms as worldwide stock markets climbed. All of Asia seems to be benefiting from the growth and expansion of the Chinese economy and trade surpluses with the U.S.

By year end, almost all gold companies had terminated hedging operations, which reduced past selling into the market, but also removed a large amount of buy-backs to cancel previous hedges.

Foreign central bankers have made a major commitment to the value of the dollar, yet many expressed the idea that they were considering holding fewer dollars in the future. Almost ten trillion dollars of U.S. debt is now held by foreigners.

Congress raised the national debt limit to $8.184 Trillion, which is an indication to the rest of the world that we will accept higher deficits into the future.

A new exchange traded fund (ETF) for gold was started and exceeds by far the assets of the largest gold fund, Vanguard. (VGPMX)

The war in Iraq continues to give mixed signals, but all agree that it won't end soon, and U.S. expenses will continue to add to the federal budget deficit. New attempts after the election to reduce the deficits may or may not be effective. The market seems to have accepted the war as normal.

fn       Fund                     1 mo   3 mo  12 mo   2 yr   3 yr
 22 VGPMX Vanguard Prec Metals .  -1.2  10.7   8.0  71.7 128.6  16.69
 11 MIDSX Midas Fund           .  -3.6   3.9  -2.7  47.6 137.8   2.14
 19 UNWPX US Global World Pr Mns  -4.1   7.3   1.0  92.8 245.0  16.36
 13 OPGSX Oppenheimer Gold A   .  -4.3   2.7  -4.5  51.9 116.2  18.59
  6 FSAGX Fidelity Select Gold .  -5.1   0.8  -9.8  18.9  95.2  26.91
 18 USERX US Global Gold Shares.  -5.3   3.1  -6.4  56.4 187.7   8.15
 17 TGLDX Tocqueville Gold     .  -5.5   0.7  -5.9  44.8 164.3  33.07
  8 FKRCX Franklin Gold & PrMt A  -5.7   0.6  -5.5  40.9  97.6  18.36
 20 USAGX USAA Precious Metals .  -6.0   0.3 -10.8  54.2 161.9  15.33
 10 LEXMX ING Precious Metals A.  -6.3  -0.2 -10.2  31.4 119.0   6.75
  7 SGGDX First Eagle Gold A   .  -6.3  -1.2  -5.1  32.3 173.6  16.52
  2 FGLDX AIM Gold & Pr Mtls Inv  -6.6  -1.6  -4.9  40.0 123.6   3.65
 12 OCMGX OCM Gold             .  -6.7  -3.0 -13.6  28.9 153.2  11.55
  5 EKWBX Evergreen Prec Mtls B.  -6.7   0.3  -6.5  54.6 164.6  31.67
 16 SGDAX Scudder Gold & Pr Mt A  -6.9  -1.5  -9.3  76.7  99.9  17.30
  9 GOLDX Gabelli Gold         .  -7.0  -2.0 -10.9  33.2 152.7  16.00
  4 INPMX AXP Precious Metals A.  -7.0  -2.5 -14.6  35.9 118.2   9.39
  3 BGEIX Amer Cent Global Gold.  -7.1  -0.9  -8.2  34.6 133.0  12.00
 21 INIVX Van Eck Intl Inv GoldA  -7.4  -0.5  -7.7  33.1 154.0   9.77
 15 RYPMX Rydex Prec Metals    .  -8.6  -7.4 -14.1  22.2  81.2  38.15
  1 ASA   ASA Ltd              .  -9.8  -5.2  -9.9   1.9 114.3  40.45
 14 PMPIX Profund Prec Mtls Ultr -13.7  -3.8 -17.0  31.7        29.99

Vanguard Precious Metals(VGPMX) once again led the pack and was by far the top fund for 2004, with U.S. Global World Precious Minerals (UNWPX) the only other fund to gain for the year. The new gold ETF siphoned over $1,5 billion from investors to buy bullion and could have sidetracked much cash that was destined for gold stocks instead. In any case, funds and gold stocks did not match the move by gold over the last two months of the year following the election.

Profund Precious Metals (PMPIX) was the first new fund added to our list of funds in two years.

This is a list of reported distributions during 2004. This combines dividends and capital gains, and they're taken into consideration for comparison of annual results.

fn        Fund                  distribution
16 SGDAX Scudder Gold & Pr Mt A   1.66
13 OPGSX Oppenheimer Gold A   .   1.38
17 TGLDX Tocqueville Gold     .   1.36
 4 INPMX AXP Precious Metals A.   1.16
22 VGPMX Vanguard Prec Metals .   1.00
21 INIVX Van Eck Intl Inv GoldA   0.97
 1 ASA   ASA Ltd              .   0.55
19 UNWPX US Global World Pr Mns   0.46
12 OCMGX OCM Gold             .   0.36
10 LEXMX ING Precious Metals A.   0.23
 9 GOLDX Gabelli Gold         .   0.20
20 USAGX USAA Precious Metals .   0.15
 3 BGEIX Amer Cent Global Gold.   0.08
18 USERX US Global Gold Shares.   0.05
 2 FGLDX AIM Gold & Pr Mtls Inv   0.04
 8 FKRCX Franklin Gold & PrMt A   0.01
 5 EKWBX Evergreen Prec Mtls B.   0.00
11 MIDSX Midas Fund           .   0.00
15 RYPMX Rydex Prec Metals    .   0.00
 7 SGGDX First Eagle Gold A   .   0.00
 6 FSAGX Fidelity Select Gold .   0.00
14 PMPIX Profund Prec Mtls Ultr   0.00

The Position indicator gives the relative position of a fund between its 52 week high and low. A high is represented by +100 and a low by -100. As of December 31, 2004.

fn        Fund                    pos     nav
22 VGPMX Vanguard Prec Metals .   84.1  16.69
11 MIDSX Midas Fund           .   54.1   2.14
 8 FKRCX Franklin Gold & PrMt A   34.3  18.36
 7 SGGDX First Eagle Gold A   .   29.0  16.52
17 TGLDX Tocqueville Gold     .   27.5  33.07
18 USERX US Global Gold Shares.   27.1   8.15
 2 FGLDX AIM Gold & Pr Mtls Inv   26.8   3.65
19 UNWPX US Global World Pr Mns   26.6  16.36
 5 EKWBX Evergreen Prec Mtls B.   22.3  31.67
21 INIVX Van Eck Intl Inv GoldA   20.5   9.77
 3 BGEIX Amer Cent Global Gold.   19.1  12.00
13 OPGSX Oppenheimer Gold A   .   19.0  18.59
 1 ASA   ASA Ltd              .   16.3  40.45
10 LEXMX ING Precious Metals A.    7.7   6.75
 6 FSAGX Fidelity Select Gold .    4.6  26.91
 9 GOLDX Gabelli Gold         .    2.6  16.00
14 PMPIX Profund Prec Mtls Ultr    2.3  29.99
20 USAGX USAA Precious Metals .   -9.2  15.33
15 RYPMX Rydex Prec Metals    .  -11.5  38.15
16 SGDAX Scudder Gold & Pr Mt A  -12.6  17.30
12 OCMGX OCM Gold             .  -15.6  11.55
 4 INPMX AXP Precious Metals A.  -36.0   9.39

This indicator shows that most funds are above their 52 week averages. Vanguard (VGPMX) and Midas (MIDSX) have held most of their gains since last summer, and a few have fallen below their yearly average.

The following list shows the approximate size of funds as measured in total assets under management in $millions. (As of the end of December) This is only an approximation as the size changes daily with new purchases, redemptions, and nav changes. Relative positions of the funds usually don't change much. The largest remain the largest.

fn         Fund                 $assets
22 VGPMX Vanguard Prec Metals .   770
 6 FSAGX Fidelity Select Gold .   694
 3 BGEIX Amer Cent Global Gold.   691
17 TGLDX Tocqueville Gold     .   511
 7 SGGDX First Eagle Gold A   .   505
 8 FKRCX Franklin Gold & PrMt A   462
 1 ASA   ASA Ltd              .   387
20 USAGX USAA Precious Metals .   327
19 UNWPX US Global World Pr Mns   282
 9 GOLDX Gabelli Gold         .   282
21 INIVX Van Eck Intl Inv GoldA   238
13 OPGSX Oppenheimer Gold A   .   231
15 RYPMX Rydex Prec Metals    .   229
16 SGDAX Scudder Gold & Pr Mt A   127
 2 FGLDX AIM Gold & Pr Mtls Inv   109
10 LEXMX ING Precious Metals A.    86
18 USERX US Global Gold Shares.    76
12 OCMGX OCM Gold             .    72
14 PMPIX Profund Prec Mtls Ultr    67
 4 INPMX AXP Precious Metals A.    59
11 MIDSX Midas Fund           .    57
 5 EKWBX Evergreen Prec Mtls B.    44

Vanguard (VGPMX) passed both Fidelity(FSAGX) and American Century(BGEIX) in total assets during the year, but Tocqueville(TGLDX) and First Eagle (SGGDX) are close behind. Over the past two years, as they have gone up in NAV, all of these funds have been receiving new investment funds. The publicity of gold reaching new sixteen year highs has definitely brought about increased interest in the gold sector.

The promotion of the ETF for gold was good in that it caused some new advertisement for gold investing, but it probably took some of the money which might have gone into gold funds and stocks and put it into bullion.

The beta indicator measures the relative volatility of a fund's net asset value (nav) movement over the last 52 weeks as compared to the gold fund group average, 1.0. This number indicates volatility but does not specify the direction of movement, so it is only a measurement of relative activity of the price of the fund.

fn        fund                     beta
14 PMPIX Profund Prec Mtls Ultr    1.56
20 USAGX USAA Precious Metals .    1.18
 4 INPMX AXP Precious Metals A.    1.10
13 OPGSX Oppenheimer Gold A   .    1.08
16 SGDAX Scudder Gold & Pr Mt A    1.08
 6 FSAGX Fidelity Select Gold .    1.04
18 USERX US Global Gold Shares.    1.04
19 UNWPX US Global World Pr Mns    1.03
12 OCMGX OCM Gold             .    1.02
15 RYPMX Rydex Prec Metals    .    1.02
 3 BGEIX Amer Cent Global Gold.    0.94
11 MIDSX Midas Fund           .    0.94
 9 GOLDX Gabelli Gold         .    0.93
21 INIVX Van Eck Intl Inv GoldA    0.90
10 LEXMX ING Precious Metals A.    0.87
22 VGPMX Vanguard Prec Metals .    0.85
 2 FGLDX AIM Gold & Pr Mtls Inv    0.85
 5 EKWBX Evergreen Prec Mtls B.    0.84
 1 ASA   ASA Ltd              .    0.81
 8 FKRCX Franklin Gold & PrMt A    0.80
17 TGLDX Tocqueville Gold     .    0.75
 7 SGGDX First Eagle Gold A   .    0.71

The beta for each fund may change as the fund advances and declines, but the general position on the ladder doesn't change much, except as a reference to other funds. As you can see, there is a big difference between management policies of different funds. For the two annual leaders, UNWPX has more price movement than VGPMX.

After reaching a sixteen year high in early December, gold slid to some support near 435 and gold stocks indicated that more weakness might be next. The dollar wouldn't go under 80 and looked like it was ready for a rally, in which the smart money will then get out and the dollar decline can resume later in the year.

Gold's advance over the year can be credited almost entirely to the weakness in the dollar as the currency fell. Therefore, it did not foster any support on the international stage in other currencies. If the dollar rallies even in the face of ever-increasing trade deficits, then gold will drop back to support areas between 400 and 430. As a result of the weak dollar the euro reached a new high over 1.36 and the yen rose almost to 102 yen per dollar.

As mentioned, gold stocks and funds could not match the positive move by gold over the year, which is unusual. It could be because of a lead that stocks had over gold last January.

Central bankers have shown less inclination to sell gold from their reserve vaults lately as gold has climbed in dollars. It has, however, not gone far in other currencies.

As I mentioned last month, if I had tons of U.S. dollars and wanted to get rid of them in a feasible manner, I would buy worldwide assets, including Canadian and U.S. property. China is negotiating the purchase of Canadian oil properties and gold mines, and has recently worked out an agreement with Venezuela to supply oil, which usually goes to the U.S.

The only international item having a serious influence on the markets in 2004 was the war in Iraq, which affects the price of oil and increases the budget deficit. The tsunami in South Asia has yet to have an effect other than it will have a detrimental effect on the economies of Indonesia, Sri Lanka, India, and Thailand. On the other hand, the massive aid may actually give them a boost.