Gold gained as the dollar fell, but there remains plenty of doubt as to how far the dollar will fall, and some analysts think it has slipped enough for now. The dollar index closed at 99.91 after a mild end of the month rally, and the euro climbed from 1.049 to over 1.080 before closing at 1.077.

For most of January, gold maintained a slow and steady rise, momentarily penetrating 370, then falling back to close at 368.3. Silver didn't follow the gold recipe, cycling between 4.75 and 4.89 before ending at 4.85. XAU advanced from 77.8 to 79.5 before falling to 73.7, rallying to 82.2 and ending at 77.0. Gold funds followed this cycle, unwilling to follow gold completely, and very willing to give up gains.

Oil closed the month at $33.51, only slightly above December, possibly due to OPEC's decision to augment production to make up for Venezuela's shortfall. Even with a debilitating strike, Venezuela managed to get production up to about 30% of normal. Brazil and Argentina, improving their situations somewhat, are not much of a factor anymore, other than an example of what happens when a national currency loses too much value.

Many analysts continued to give rosy predictions for the U.S. economy but there is no evidence of any recovery in sight. The vacancy rate for industrial properties increased, and the Dow dipped from 8341 to under 8000 before closing at 8053. Personal bankruptcy filings increased and the trade deficit for November came in over $40 billion, another record. All known measurements of confidence in the economy slipped.

The Federal Reserve held its short term interest rate unchanged for January, and the long bond yield closed at 4.84%, up from 4.78% in December, showing no signs of a disrespect for U.S. debt.

The real estate market kept on churning as new home purchases remained at a high level. Fannie Mae and Freddie Mac added to their total assets, which acts as a support for the mortgage market which, in turn, also supports the real estate market.

Two major problems were being mentioned more often: many states are experiencing large budget deficits, and many large pensions are drastically underfunded. The Fed in its great wisdom denies that there are any problems with public household debt. National income increased over 4% last year, so maybe they're right.

  fn         Fund                   1 mo   3 mo  12 mo   2 yr   3 yr
  18 UNWPX US Global World PrecM.    3.8   35.0   57.8   85.5   39.1
  15 SCGDX Scudder Gold & Pr Mt S    3.4   25.9   57.2   71.2   93.7
   6 SGGDX First Eagle SGen Gold.    3.4   28.0   80.9  112.6  147.3
  21 VGPMX Vanguard Prec Metals .    3.3   13.0   20.8   31.6   50.6
  19 USAGX USAA Gold            .    2.7   20.0   46.4   65.8  102.8
  17 USERX US Global Gold Shrs  .    2.5   34.8   59.5   88.5   64.8
   3 INPMX AXP Precious Metals A.    2.2   25.3   43.5   57.6   66.9
   8 GOLDX Gabelli Gold         .    2.0   32.2   67.5   93.7  126.6
   4 EKWBX Evergreen Prec Mtls B.    2.0   27.1   53.4   73.8  103.1
  12 MNTGX Monterey OCM Gold    .    1.4   27.4   71.1   99.2  127.6
  16 TGLDX Tocqueville Gold     .    1.1   19.6   52.7   76.9  108.3
  10 FGLDX INVESCO Gold & Pr Mtl.    1.1   22.1   44.5   61.4   71.4
   2 BGEIX Amer Cent Global Gold.    0.7   25.5   52.2   73.4  100.4
  20 INIVX Van Eck Intl Inv GoldA    0.2    6.0   36.4   55.5   63.2
   5 FSAGX Fidelity Select Gold .    0.1   23.3   43.6   61.7   85.1
  13 OPGSX Oppenheimer Gold A   .   -0.4   18.6   28.8   40.3   42.6
   9 LEXMX ING Pilgrim Pr Mtls A.   -0.4   20.0   49.2   66.0   80.2
  11 MIDSX Midas Fund           .   -0.7   18.8   46.2   60.0   39.4
  14 RYPMX Rydex Prec Metals    .   -1.0   20.5   29.4   46.8       
   7 FKRCX Franklin Gold & PrM A.   -1.0   17.9   27.7   37.5   44.4
   1 ASA   ASA Ltd              .   -2.5   29.9   79.9   97.4  144.7

January was definitely mixed in performance for gold funds. Following the great gains in December, January didn't turn out to be very good for gold funds, even as gold kept on setting new six year highs. Gold equity investors seem to have some doubt as to the sustainability of the gold advance.

ASA Ltd (NYSE-ASA), in particular, is giving the impression that it doesn't think much of gold's advance although it set a new recent high on January 3.

fn     Fund                       pos  nav(01-31-03)
15 SCGDX Scudder Gold & Pr Mt S   91.6   11.76
 6 SGGDX First Eagle SGen Gold.   88.2   13.33
 8 GOLDX Gabelli Gold         .   86.2   12.53
12 MNTGX Monterey OCM Gold    .   84.9    9.58
16 TGLDX Tocqueville Gold     .   84.3   24.47
 5 FSAGX Fidelity Select Gold .   82.8   23.95
 1 ASA   ASA Ltd              .   81.9   39.97
 4 EKWBX Evergreen Prec Mtls B.   76.1   21.31
 2 BGEIX Amer Cent Global Gold.   68.5    9.19
10 FGLDX INVESCO Gold & Pr Mtl.   64.8    2.76
19 USAGX USAA Gold            .   64.6   10.91
11 MIDSX Midas Fund           .   63.9    1.52
 9 LEXMX ING Pilgrim Pr Mtls A.   61.5    5.28
14 RYPMX Rydex Prec Metals    .   46.8   30.92
 7 FKRCX Franklin Gold & PrM A.   44.0   12.97
17 USERX US Global Gold Shrs  .   41.5    5.39
13 OPGSX Oppenheimer Gold A   .   41.0   13.85
 3 INPMX AXP Precious Metals A.   40.4    8.48
21 VGPMX Vanguard Prec Metals .   33.5   11.25
18 UNWPX US Global World PrecM.   29.9   10.07
20 INIVX Van Eck Intl Inv GoldA   19.7    8.32

Seven funds exceeded or were very close to their highs set last May: First Eagle SoGen Gold (SGGDX), ASA Limited (ASA-NYSE), Monterey OCM Gold (MNTGX), Gabelli Gold (GOLDX), Scudder Gold (SCGDX), Fidelity (FSAGX), and Tocqueville(TGLDX). Some of the others didn't even get close.

These numbers demonstrate a fund's ability to retain previous advances without falling out of bed when gold has a bad month or two. It's obvious which funds couldn't hold onto their gains and which have.

The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of January 31) 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
21 VGPMX Vanguard Prec Metals .    674
 5 FSAGX Fidelity Select Gold .    614
 2 BGEIX Amer Cent Global Gold.    410
 1 ASA   ASA Ltd              .    383
 7 FKRCX Franklin Gold & PrM A.    264
20 INIVX Van Eck Intl Inv GoldA    172
18 UNWPX US Global World PrecM.    148
15 SCGDX Scudder Gold & Pr Mt S    139
19 USAGX USAA Gold            .    139
13 OPGSX Oppenheimer Gold A   .    130
 8 GOLDX Gabelli Gold         .    122
10 FGLDX INVESCO Gold & Pr Mtl.    122
 9 LEXMX ING Pilgrim Pr Mtls A.    112
16 TGLDX Tocqueville Gold     .     98
 6 SGGDX First Eagle SGen Gold.     94
17 USERX US Global Gold Shrs  .     90
14 RYPMX Rydex Prec Metals    .     75
 3 INPMX AXP Precious Metals A.     51
11 MIDSX Midas Fund           .     46
12 MNTGX Monterey OCM Gold    .     43
 4 EKWBX Evergreen Prec Mtls B.     28

The total amount of assets under management by these funds has doubled over the past year, mostly due to net asset value increases, but also due to new investment capital directed toward gold funds. The mutual fund boom of 1998-2000 was fueled by cash being thrown at the stock market by giving it to mutual funds and forcing them to find stocks to invest in. Gold funds are not there yet, but the potential exists for that to happen soon. There are only so many valid gold equities worldwide and until recently the total was exceeded by the capitalization of individual corporations, such as Coca-Cola alone.

Since neither Vanguard (VGPMX) nor Fidelity (FSAGX) is leading the pack in performance, it looks like fund marketing with name recognition is still important in increasing funds under management. While not the most famous gold funds, they are certainly well know in the mutual fund business and therefore benefit from their reputations. Far from a negative, a fund family's reputation should be a major factor in selecting a fund.

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. Naturally, if the market is going up, you would want one at the top of this list. However, during a correction, the funds at the bottom would probably do better.

fn      fund                      beta
18 UNWPX US Global World PrecM.   1.55
17 USERX US Global Gold Shrs  .   1.51
 6 SGGDX First Eagle SGen Gold.   1.38
 1 ASA   ASA Ltd              .   1.37
20 INIVX Van Eck Intl Inv GoldA   1.21
 8 GOLDX Gabelli Gold         .   1.21
12 MNTGX Monterey OCM Gold    .   1.20
16 TGLDX Tocqueville Gold     .   1.07
 3 INPMX AXP Precious Metals A.   1.07
 2 BGEIX Amer Cent Global Gold.   1.06
 9 LEXMX ING Pilgrim Pr Mtls A.   1.02
19 USAGX USAA Gold            .   1.02
11 MIDSX Midas Fund           .   0.99
 4 EKWBX Evergreen Prec Mtls B.   0.97
10 FGLDX INVESCO Gold & Pr Mtl.   0.89
15 SCGDX Scudder Gold & Pr Mt S   0.85
 5 FSAGX Fidelity Select Gold .   0.85
14 RYPMX Rydex Prec Metals    .   0.82
13 OPGSX Oppenheimer Gold A   .   0.68
21 VGPMX Vanguard Prec Metals .   0.66
 7 FKRCX Franklin Gold & PrM A.   0.65

The beta for each fund changes 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. The nav movement is a direct reflection of the types of equities selected by the fund manager.

US Global World Precious Minerals (UNWPX) was slightly ahead of Scudder Gold (SCGDX), First Eagle (SGGDX), and Vanguard Precious Metals (VGPMX). US Global is a high beta and Vanguard a low beta fund, indicating the unusual nature of this market. There doesn't seem to be a consistent trend here. Gold funds have become schizophrenic, two-faced, undecided and uncommitted. The fact that ASA had the worst performance for January after leading in December may be an indication that international demand has receded for gold funds for now.

Since gold has been following the demise of the dollar, a dollar rally would certainly cut the gold price back, and an oddball peaceful solution to the expected war in Iraq would cut any war premium in the gold price by at least $20.

However, a rally in the dollar brought on by sudden peace or by any other economic force would have a short term affect on gold and gold funds, and the long term trend remains. The trade deficit and a slipping economy will continue to put pressure on the dollar well into the future, and that means long term gold is up.

In purely domestic economic terms, the real estate market continues up, boosted by Fannie Mae and Freddie Mac. However, an upward curve cannot continue forever, and when it turns due to a policy change or economic necessities, we will see a real estate industry in serious trouble. That would not be good for most of us, whenever it happens, but it is coming.

In other words, the absolute confidence that some people in charge of their small section of the economy have that good times will continue unaffected by the rest, is frightening to me. Fannie and Freddie assets cannot go to the moon, the trade deficit cannot keep producing record numbers, American manufacturing cannot continue to move overseas, states cannot continue to have large budget deficits, and the dollar cannot keep descending in value without someone paying the price. Investor, protect thyself.