GDP was up 4% for the fourth quarter of 2003, and consumer confidence as reported by the Conference Board reached its highest level over the last 18 months. The November trade deficit came in at $38b, less than previous, but still huge. Exports increased with the weaker dollar, and the stock market celebrated by reaching a high before falling back to close at 10,488.

A major stock market and gold price slide during the last week of the month was caused when the Federal Reserve inferred that, although the short term interest rate would be left for now at 1%, it might go up soon. That pushed both the Dow and gold down from recent highs.

The dollar slid for most of the month but rose with the possibility of higher interest rates. The euro gained from 1.257 to over 1.28 before falling quickly to 1.2478 as the dollar strengthened. The Japanese continued to support the dollar in an attempt to keep the yen low, but it is becoming too expensive for them to do it much longer. The yen closed at 105.7 yen/dollar, near a 3 1/2 year high. Federal Reserve holdings of U.S. Treasury and agency debt for foreign central banks is over $1.1 Trillion.

Industrial growth in China is booming, requiring increased importing from other Asian countries, including raw materials from all over the world. This demand for commodities has had an effect of higher prices for most raw materials for everyone else. In addition, officially they still have no intention of re-evaluating the yuan against the dollar in the near term.

Interest rates remained low as the long bond yield closed at 5.97% and the 30 year mortgage closed the month at 5.68%. Housing demand was strong as 2003 had a record year for existing homes and December numbers were up almost 7%. New home sales slipped slightly. The 2004 housing market looks good from here, unless mortgage rates go up.

The recent dollar rally and Federal Reserve miscommunication had major effects on foreign markets, too, particularly bond markets. The fear of a higher U.S. interest rate caused prices in many countries, including Argentina, Thailand, and Mexico to drop in light of a possibly stronger dollar.

The Senate passed a bill to provide more support to the Pension Benefit Guarantee Corporation, which would require about 80 billion added to the budget.

fn       Fund                     1 mo   3 mo  12 mo   2 yr   3 yr
21 VGPMX Vanguard Prec Metals .   -6.7    4.2   43.6   81.4  136.1
18 UNWPX US Global World PrecM.   -7.2    7.1   70.7  169.9  244.4
 1 ASA   ASA Ltd              .   -7.5   -2.5    7.2  100.5  177.4
 3 INPMX AXP Precious Metals A.   -8.0    1.3   43.2  113.9  147.4
 6 SGGDX First Eagle Gold     .   -8.3    3.1   23.7  125.1  255.5
16 TGLDX Tocqueville Gold     .   -8.3   -1.7   39.5  122.3  210.9
15 SGDAX Scudder Gold & Pr Mts.   -8.8   -2.2   71.9  177.0  244.2
10 FGLDX INVESCO Gold & Pr Mtl.   -8.8    1.9   32.9   92.0  153.0
 5 FSAGX Fidelity Select Gold .   -9.1   -3.3   19.7   74.7  148.1
20 INIVX Van Eck Intl Inv GoldA   -9.4   -0.0   30.4  118.8  200.0
 9 LEXMX ING Precious Metals  .   -9.5    1.2   33.0   98.3  173.9
 7 FKRCX Franklin Gold & PrM A.   -9.7    0.3   35.9   75.1  103.4
 4 EKWBX Evergreen Prec Mtls B.   -9.8    0.6   46.3  125.4  220.8
11 MIDSX Midas Fund           .  -10.0   -2.9   34.0  101.0  148.8
19 USAGX USAA Gold            .  -10.1   -0.7   50.6  132.9  250.4
 8 GOLDX Gabelli Gold         .  -10.5   -3.0   31.1  119.7  215.3
12 OCMGX Monterey OCM Gold    .  -10.7   -1.0   31.1  125.0  236.8
17 USERX US Global Gold Shrs  .  -11.3    1.9   44.6  130.7  202.2
 2 BGEIX Amer Cent Global Gold.  -11.4   -1.5   29.1   97.3  201.0
14 RYPMX Rydex Prec Metals    .  -11.4    3.2   27.3   64.7  120.5
13 OPGSX Oppenheimer Gold A   .  -11.8   -2.9   40.9   83.4  137.4

The leading gold fund for January was Vanguard Precious Metals (VGPMX), but all funds lost value as gold fell to the low 400's. Gold funds have essentially lost all gains over the past three months, back to late October. On the other hand, most gold funds have doubled over the last two years, which places them far ahead of the average stock mutual fund.

Every fund has doubled within the last two years, some have tripled.

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 January 30, 2004.

fn        Fund                    pos     nav
18 UNWPX US Global World PrecM.   65.2   15.46
 4 EKWBX Evergreen Prec Mtls B.   63.9   30.56
21 VGPMX Vanguard Prec Metals .   63.2   15.29
 6 SGGDX First Eagle Gold     .   59.6   15.97
16 TGLDX Tocqueville Gold     .   55.5   33.54
11 MIDSX Midas Fund           .   53.7    1.98
15 SGDAX Scudder Gold & Pr Mts.   52.5   19.07
10 FGLDX INVESCO Gold & Pr Mtl.   51.1    3.54
 3 INPMX AXP Precious Metals A.   50.9   11.36
 1 ASA   ASA Ltd              .   50.4   42.10
20 INIVX Van Eck Intl Inv GoldA   48.3   10.55
 7 FKRCX Franklin Gold & PrM A.   47.7   17.54
19 USAGX USAA Gold            .   46.8   15.59
 5 FSAGX Fidelity Select Gold .   45.2   27.13
 9 LEXMX ING Precious Metals  .   41.5    7.02
 8 GOLDX Gabelli Gold         .   39.8   16.28
13 OPGSX Oppenheimer Gold A   .   39.2   18.45
 2 BGEIX Amer Cent Global Gold.   38.3   11.67
14 RYPMX Rydex Prec Metals    .   36.6   39.36
17 USERX US Global Gold Shrs  .   36.4    7.77
12 OCMGX Monterey OCM Gold    .   33.6   12.32

All are well above their 52 week average. This indicator demonstrates a fund's ability to retain previous advances without falling out of bed when gold has a bad month or two. Distributions have been included for these comparisons.

This is a list of reported distributions during 2003, highly unusual but expected after the substantial gains.

fn        Fund                  distribution
18 UNWPX US Global World PrecM.   1.86
 5 FSAGX Fidelity Select Gold .   1.42
15 SGDAX Scudder Gold & Pr Mts.   1.25
13 OPGSX Oppenheimer Gold A   .   1.20
19 USAGX USAA Gold            .   0.94
21 VGPMX Vanguard Prec Metals .   0.93
 3 INPMX AXP Precious Metals A.   0.85
 1 ASA   ASA Ltd              .   0.75
 4 EKWBX Evergreen Prec Mtls B.   0.69
16 TGLDX Tocqueville Gold     .   0.64
 6 SGGDX First Eagle Gold     .   0.56
12 OCMGX Monterey OCM Gold    .   0.28
20 INIVX Van Eck Intl Inv GoldA   0.22
 2 BGEIX Amer Cent Global Gold.   0.20
 8 GOLDX Gabelli Gold         .   0.17
10 FGLDX INVESCO Gold & Pr Mtl.   0.14
 7 FKRCX Franklin Gold & PrM A.   0.10
11 MIDSX Midas Fund           .   0.08
17 USERX US Global Gold Shrs  .   0.03
14 RYPMX Rydex Prec Metals    .   0.01
 9 LEXMX ING Precious Metals  .   0.00

While in past years there was a lack of dividends from gold funds, 2003 saw an overflowing of dividends, mostly in December, as a result of fund gains.

The following list shows the approximate size of funds as measured in total assets under management in $millions. (As of January 30) 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
 5 FSAGX Fidelity Select Gold .  749
 2 BGEIX Amer Cent Global Gold.  636
21 VGPMX Vanguard Prec Metals .  548
16 TGLDX Tocqueville Gold     .  463
 1 ASA   ASA Ltd              .  403
 7 FKRCX Franklin Gold & PrM A.  402
 6 SGGDX First Eagle Gold     .  386
19 USAGX USAA Gold            .  283
20 INIVX Van Eck Intl Inv GoldA  279
18 UNWPX US Global World PrecM.  265
13 OPGSX Oppenheimer Gold A   .  186
 8 GOLDX Gabelli Gold         .  166
15 SGDAX Scudder Gold & Pr Mts.  158
10 FGLDX INVESCO Gold & Pr Mtl.  124
 9 LEXMX ING Precious Metals  .  101
17 USERX US Global Gold Shrs  .   75
 3 INPMX AXP Precious Metals A.   66
14 RYPMX Rydex Prec Metals    .   66
11 MIDSX Midas Fund           .   63
12 OCMGX Monterey OCM Gold    .   46
 4 EKWBX Evergreen Prec Mtls B.   34

The total capitalization of all gold mining investments worldwide was less than $90 billion, but with each month producing an asset growth, total assets are increasing substantially. We have seen these numbers approximately double over the last twelve months. While the navs are increasing and contribute to the increased asset level, it also shows that there are more investment funds coming into precious metal funds from other sources.

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
15 SGDAX Scudder Gold & Pr Mts.   1.65
18 UNWPX US Global World PrecM.   1.43
19 USAGX USAA Gold            .   1.33
17 USERX US Global Gold Shrs  .   1.30
13 OPGSX Oppenheimer Gold A   .   1.22
 3 INPMX AXP Precious Metals A.   1.15
 4 EKWBX Evergreen Prec Mtls B.   1.12
11 MIDSX Midas Fund           .   1.06
16 TGLDX Tocqueville Gold     .   1.04
 2 BGEIX Amer Cent Global Gold.   1.03
 8 GOLDX Gabelli Gold         .   1.03
20 INIVX Van Eck Intl Inv GoldA   1.02
 7 FKRCX Franklin Gold & PrM A.   0.98
14 RYPMX Rydex Prec Metals    .   0.98
21 VGPMX Vanguard Prec Metals .   0.98
10 FGLDX INVESCO Gold & Pr Mtl.   0.97
12 OCMGX Monterey OCM Gold    .   0.97
 9 LEXMX ING Precious Metals  .   0.96
 5 FSAGX Fidelity Select Gold .   0.81
 6 SGGDX First Eagle Gold     .   0.73
 1 ASA   ASA Ltd              .   0.69

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. These numbers did not change since December.

January was not a good month for gold funds, following the fall in the gold price and the silver price. This is also represented by the fall in XAU of about 12%. A correction for gold was expected, but the fall to 398 reached a support area which could be the start of something big.

While gold reached its high in early January, silver reached its high on the 28th, just prior to Federal Reserve comments. That might indicate that silver is about to do its own thing and not wait for gold. In world finance, gold more closely represents the failures of central bank policies than silver and therefore bankers are more likely to do whatever is in their power to keep gold down, such as sell gold bullion from bank reserves.

With a growing GDP and many numbers indicating that the economy is growing faster than most of the world, the Dow numbers have been climbing also. Housing still shows little sign of slowing down, so the average investor is becoming more optimistic for 2004.

The fact that a recovering dollar would have such a sudden effect on not only stock markets and gold prices, but international bond markets shows just how important it is to maintain a stable dollar for world trade. When the trade deficit came in at 'only' 38 billion dollars, everyone celebrated, but it is still huge enough to put pressure on the dollar.

The main beneficiary of the weaker dollar was Europe with a decreasing euro, and we could see a dollar rally extend into February. This would hold gold down until dollar support runs out of steam.

Interest rates are still holding near forty year lows, and the economy has grown to expect them to continue. The fact that they might soon go up scared the markets enough to show what kind of tightrope the Fed is walking. If the market starts to demand higher yields from U.S. debt, the Fed will have to comply with higher yields, and the tightrope walker will fall off the rope.

If interest rates were to increase, it would certainly raise mortgage rates and put a dampener on the housing market. Since this has become one of the largest source of jobs lately, no politician wants to see rates get out of control and ruin the housing bonanza.

With the many expenditures being added to the taxpayers bill every week by Congress and President Bush, it is no surprise that he is starting to make statements about limiting spending programs. So far it is just talk.