Silver began at 8.82, reached 9.84 (+11%) in February, corrected to 9.10 (-7%), and then surged to 14.84 (+63%) in May. A one month trashing took it to 9.59 (-36%) in June before it rallied to 13.06 (+36%) in September. In October, it slid with gold, bottoming at 10.70 (-19%), from where it climbed back to 14.06 (+31%) in December. Since then it has been in a slow slide down to 12.35 (-12%). The last week of December showed some tendency to advance, closing the year at 12.81. Annual increase: +45%.

XAU began at 128.03, climbed to 154.2 (+20%) in February, fell back to 124.2 (-20%), and then joined the party, reaching 168.6 (+35%) on May 10. June saw it fall to 120.0 (-29%) before rallying to 151.8 (+26%) in September. From there it fell back to 120.6 (-21%) in October and rallied to 149.4 (+23%) in early December. A correction brought it back down to 138 before closing the year at 142.25. Annual increase: only +11%.

The dollar index started the year at 91.17, quickly fell to 87.95 in January, rallied back to 90.84 in early March, crashed to 83.91 in May as gold peaked, then rallied to 87 as gold faltered in October. From there it slid to 82.50 before trying to recover in December. It was a fifteen year low against the British pound, and closed the year at 83.70. Annual change: -8.2%.

The long bond yield began the year at 4.55%, climbed to 5.29% in May, and then began a gradual descent to 4.54% by early December. It closed the year at 4.81%. The general trend over the year was that the yield went up with gold, indicating treasuries were sold, and reversed as gold descended.

The Dow and S&P500 each had a very good year, closing at 12,463 after climbing temporarily as high as 12,529. Investors are supremely confident in a climbing market, which may provide just the opposite.

Oil closed at 60.95 and natural gas at 6.31 after each had very good years. Because they have both fallen off from summer highs, inflation fears have abated, suggesting that the Federal Reserve might cut rates from its current 5.25%. Thoughts of lower rates have boosted the stock market.

The housing market started great but reality set in as housing sales weakened and foreclosures increased. Mortgage rates were consistent with last year's at about 6.2%. One good recent sign was an increase in new home sales in November, but the future still looks dim. Because so many industries depend upon a robust housing market, we can expect a recessionary tendency in the economy until housing recovers, whenever that is.

Gold fund results varied from annual increases of 4% to 51%, but in general gold equities did not seem to match the basic metals until the last rally of the year.

For the month, gold funds took it on the chin as gold dropped from 647.5 to 635.2 after falling as low as 612. Most gold funds lost value. XAU slipped from 149.28 to 142.25, but finished strong.

During the year, several large mines bought out smaller producers: Barrick Gold(ABX) bought out Placer Dome(PDG) at a premium, Goldcorp(GG) bought out Glamis Gold(GLG) at a premium, and IAMGold(IAG) bought out Cambior(CBJ) at a premium. Barrick has a final offer out for Novagold(NG), but it hasn't been accepted.

During the year, two funds changed names: Scudder Gold & Precious Metals (SGDAX) changed its name this summer to DWS Gold & Precious Metals, and Gabelli Gold (GOLDX) changed its name to GAMCO Gold.

fn            Fund                1 mo   3 mo  12 mo   2 yr   3 yr
 1 ASA   ASA Ltd              .    0.5   14.5   19.8   67.4   50.8
17 TGLDX Tocqueville Gold     .   -0.7   19.9   39.0   80.2   69.7
22 VGPMX Vanguard Prec Metals .   -0.7   13.3   32.8   91.0  106.3
 8 FKRCX Franklin Gold & PrMt A   -1.7   16.2   31.7   85.1   75.0
13 OPGSX Oppenheimer Gold A   .   -1.8   19.4   43.7   89.1   80.5
 7 SGGDX First Eagle Gold A   .   -1.8    8.4   21.1   52.7   44.9
24 GLD   StrtTrks Gold Shrs ETF   -1.8    6.3   22.5   44.3       
10 LEXMX ING Precious Metals A.   -2.0   11.4   24.8   65.0   48.1
20 USAGX USAA Precious Metals .   -2.1   17.7   43.2   99.3   77.8
21 INIVX Van Eck Intl Inv GoldA   -2.3   16.3   45.2   83.7   69.5
 6 FSAGX Fidelity Select Gold .   -2.9   12.4   24.9   76.4   59.1
 5 EKWBX Evergreen Prec Mtls B.   -3.1   15.2   35.6   82.6   70.7
19 UNWPX US Global World Pr Mns   -3.1   15.1   51.7   98.0   99.9
11 MIDSX Midas Fund           .   -3.4   13.8   43.5  100.5   95.0
 2 FGLDX AIM Gold & Pr Mtls Inv   -3.4   14.1   28.5   70.4   62.1
12 OCMGX OCM Gold             .   -3.4   15.8   36.2   71.6   48.2
 9 GOLDX GAMCO Gold AAA       .   -3.6   15.1   32.3   73.4   54.5
 4 SGDAX DWS Gold & Prec Mtls A   -3.7   14.0   28.2   54.3   40.0
 3 BGEIX Amer Cent Global Gold.   -3.9   14.0   26.6   63.6   50.2
18 USERX US Global Gold Shares.   -4.2   11.6   50.2   99.4   86.6
15 INPMX Riversource Prec MtlsA   -4.3   15.1   35.3   69.9   45.1
16 RYPMX Rydex Prec Metals    .   -4.5   14.6   21.6   47.8   26.9
27 XAU   Phlx Gold/Silver Index   -4.7   10.8   11.1   43.2   30.7
26 HUI   Amex Gold Bugs Index .   -4.9   12.6   22.2   57.1   39.2
23 GDX   Mkt V Gold Miners ETF.   -5.0   11.9                     
14 PMPIX Profund Prec Mtls Ultr   -7.6   13.7    3.9   43.7   19.3
25 SLV   iShrs Silver Trust ETF   -7.9   12.3                     

For comparison purposes with gold funds, three exchange traded funds (GLD, GDX, SLV) and two indexes (HUI, XAU) were added to our list. SLV suffered the most this month as silver dropped 8% to 12.81.

ASA was the only fund on our list that managed to come out ahead in December, which might have been due to its approximately 60% investment in South African stocks. Tocqueville (TGLDX), Vanguard(VGPMX), and Franklin(FKRCX) also have significant holdings of South African stocks. There is a trend here.

From an analyst's viewpoint, any fund under GLD's percentage of change for the month is decreasing due to leverage.

The average advance for funds in 2006 was 32%.

The Position indicator gives the relative position of a fund between its 52 week high and low. A high is represented by +100 and its low by -100. Positions and prices as of the end of December.

				      nav
fn          Fund                  pos   11/30/06  12/29/06
18 USERX US Global Gold Shares.   53.7    16.78    16.07
23 GDX   Mkt V Gold Miners ETF.   49.8    41.98    39.88
20 USAGX USAA Precious Metals .   47.7    30.98    27.78
11 MIDSX Midas Fund           .   45.2     4.44     4.29
 2 FGLDX AIM Gold & Pr Mtls Inv   43.3     6.44     6.08
 5 EKWBX Evergreen Prec Mtls B.   40.3    59.58    54.82
 6 FSAGX Fidelity Select Gold .   40.2    38.67    36.50
 8 FKRCX Franklin Gold & PrMt A   37.3    34.37    32.02
17 TGLDX Tocqueville Gold     .   35.8    57.09    51.43
16 RYPMX Rydex Prec Metals    .   32.1    59.00    56.37
 3 BGEIX Amer Cent Global Gold.   31.9    20.43    19.63
19 UNWPX US Global World Pr Mns   28.5    31.81    27.26
13 OPGSX Oppenheimer Gold A   .   27.7    34.07    28.98
12 OCMGX OCM Gold             .   27.4    20.44    18.00
 1 ASA   ASA Ltd              .   25.3    64.21    64.56
24 GLD   StrtTrks Gold Shrs ETF   22.8    64.39    63.21
26 HUI   Amex Gold Bugs Index .   19.9   355.54   338.24
21 INIVX Van Eck Intl Inv GoldA   19.8    18.38    16.00
15 INPMX Riversource Prec MtlsA   16.9    16.66    14.00
22 VGPMX Vanguard Prec Metals .   16.8    31.05    28.05
25 SLV   iShrs Silver Trust ETF   16.3   139.68   128.64
 9 GOLDX GAMCO Gold AAA       .   15.2    28.53    24.98
10 LEXMX ING Precious Metals A.   11.7    11.34    10.50
27 XAU   Phlx Gold/Silver Index   -3.0   149.28   142.25
 4 SGDAX DWS Gold & Prec Mtls A   -8.5    25.85    20.66
 7 SGGDX First Eagle Gold A   .  -11.3    25.09    20.84
14 PMPIX Profund Prec Mtls Ultr  -40.6    46.66    40.81

Since these navs do not reflect the value of distributions removed from each fund, they are of limited use for comparison. However, it can be said with certainty that all funds but two are above their 52 week 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 .   3125
 6 FSAGX Fidelity Select Gold .   1442
 3 BGEIX Amer Cent Global Gold.   1031
 8 FKRCX Franklin Gold & PrMt A    914
19 UNWPX US Global World Pr Mns    878
17 TGLDX Tocqueville Gold     .    833
 7 SGGDX First Eagle Gold A   .    686
 1 ASA   ASA Ltd              .    648
20 USAGX USAA Precious Metals .    631
13 OPGSX Oppenheimer Gold A   .    609
21 INIVX Van Eck Intl Inv GoldA    408
 9 GOLDX GAMCO Gold AAA       .    382
18 USERX US Global Gold Shares.    237
16 RYPMX Rydex Prec Metals    .    196
14 PMPIX Profund Prec Mtls Ultr    171
 4 SGDAX DWS Gold & Prec Mtls A    169
 2 FGLDX AIM Gold & Pr Mtls Inv    148
11 MIDSX Midas Fund           .    133
10 LEXMX ING Precious Metals A.    121
12 OCMGX OCM Gold             .    105
15 INPMX Riversource Prec MtlsA     82
 5 EKWBX Evergreen Prec Mtls B.     74

We now have three gold funds with over a billion dollars in assets under management, a number that will grow even more in the near future. Since gold and gold funds are nowhere near a favorite approved investment, we have a long way to go, and these funds will bring in more assets as gold advances. The ETFs continue to grow, causing the removal of both silver and gold bullion from the market, and cutting down on market supply while increasing market demand. That is a recipe for higher prices.

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 by measuring the difference between a fund's high and low navs, 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
18 USERX US Global Gold Shares.   1.41
11 MIDSX Midas Fund           .   1.37
14 PMPIX Profund Prec Mtls Ultr   1.29
19 UNWPX US Global World Pr Mns   1.20
20 USAGX USAA Precious Metals .   1.18
12 OCMGX OCM Gold             .   1.15
26 HUI   Amex Gold Bugs Index .   1.10
13 OPGSX Oppenheimer Gold A   .   1.05
 3 BGEIX Amer Cent Global Gold.   1.03
10 LEXMX ING Precious Metals A.   1.03
25 SLV   iShrs Silver Trust ETF   1.01
 9 GOLDX GAMCO Gold AAA       .   1.01
21 INIVX Van Eck Intl Inv GoldA   1.01
15 INPMX Riversource Prec MtlsA   1.00
 8 FKRCX Franklin Gold & PrMt A   1.00
17 TGLDX Tocqueville Gold     .   0.99
 5 EKWBX Evergreen Prec Mtls B.   0.99
 2 FGLDX AIM Gold & Pr Mtls Inv   0.85
27 XAU   Phlx Gold/Silver Index   0.85
 1 ASA   ASA Ltd              .   0.84
16 RYPMX Rydex Prec Metals    .   0.83
24 GLD   StrtTrks Gold Shrs ETF   0.81
22 VGPMX Vanguard Prec Metals .   0.78
 4 SGDAX DWS Gold & Prec Mtls A   0.77
 7 SGGDX First Eagle Gold A   .   0.75
 6 FSAGX Fidelity Select Gold .   0.63
23 GDX   Mkt V Gold Miners ETF.   0.57

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 portfolio management policies of different funds. The greatest difference is the policy of Profund (PMPIX) to leverage purchases or go 100% cash when they want. This policy produces a higher volatility rating and more amplified returns in an up market.

The high ratings for USERX and MIDSX can be directly attributed to their unusually strong recent advances.

During December gold funds fell as the dollar rallied and gold slipped. Silver took the biggest hit, falling 8% and taking silver equities down. Most gold funds do not hold many silver stocks since there just aren't many available, so the price of silver doesn't have much effect on gold funds. However, gold and silver move together and gold cannot rally much without silver joining in, so any weakness in silver must be stopped before gold can get going again. So keep an eye on silver (SLV).

While the price of gold fluctuated from +33% to -23%, the general trend is still up, especially with large trade deficits and huge amounts of dollars accumulating in foreign central banks. As the dollar descends, gold and silver will rise, but not in a straight line.

Silver, following the recent slide under $13, seemed to bounce off support near 12.40. Silver equities turned up the last week of the year as if expecting good news.

XAU in 2006 did not even match the advance in bullion, something I don't expect to repeat. The next time around, once gold makes its move, gold equities and funds should climb at a higher rate. If gold makes a move to 800(+25%), not out of the possibilities in 2007, funds should advance at least 50%, meaning XAU around 215, and could make 75%, meaning XAU at 250. The top funds would do even better.

2007 should also see a continuing slide in the dollar since there is no fundamental economic indication that the dollar should go up, unless the euro collapses following a dysfunctional Europe, highly remote. Expect the dollar to give up another 8-10%, maybe more. That means a dollar index around 76. That should really excite current treasury holders, mostly Japan and China.

The long bond yield is an indication of money into or out of fixed treasuries, primarily by central bankers or the Federal Reserve. As the dollar descends, higher inflation will surface and demand for treasuries should decrease, causing a decline in value and a higher yield on current bonds. Eventually the inverted yield curve will disappear and higher interest rates will be countered with Federal Reserve money added to the economy. Other countries will match our increase in our money supply with even more of their own and gold will stay on its upward track for years.

With the rising Dow, there is a general belief that good earnings will continue as new jobs keep rolling in and consumers keep on spending. That assumes a housing market soft landing and further credit expansions throughout the economy, which are unlikely. I don't see the Dow going much higher in 2007 before we have a settling of accounts.

The housing market is trying for a soft landing but the extremes built up over the past three years cannot be removed easily. There will be many more foreclosures and homes turned back to mortgage companies not equipped to own equities. Prices will drop and speculators will get stung. The economy will suffer due to the lack of new cash coming from home equity refinancing.

With large mines eating up smaller producers, it's apparently easier and less expensive to buy an established mine rather than find a new one. That speaks volumes about the value of existing gold mine equities.