After the elections were tentatively successful in Iraq last week, gold lost some shine as an alternate safe investment and declined more to close the month at 421.3(-3.7%). XAU tumbled from 99.35 to 91.40 (-8%) as all funds except two were losers. Silver fell from 6.80 to 6.42 before rallying to end the month at 6.74(-1%).

At the Davos economic conference in Switzerland, economists, including a high level official from China, expressed the feeling that the dollar was losing its attraction as a reserve currency due to its tendency to depreciate rapidly. Most agreed that the two U.S. deficits were dangerous for the international currency structure, and that the U.S. government has a responsibility to correct the situation. The latest trade deficit for November came in at over $60 billion.

As a result of the deficit and Chinese policy, the People's Bank of China has become the largest buyer for U.S. Treasuries, recycling its surplus and adding to our national debt. As a result, the amazing long bond yield dropped to 4.59% from 4.82%. It indicates that there is a robust market for treasuries, but it could end at any time and send rates soaring.

The dollar index closed at 83.60, up from December's 80.85. The euro closed at 1.3046, down from 1.3602, and yen at 103.75. Oil held at 47,78,

The U.S. economy continued to move along at relatively low unemployment and low inflation as if all were well. New home sales were still up for December, and for the entire year of 2004 were up almost 9%. The average 30 year mortgage rate settled at 5.66%, a three month low, and a support for more mortgages and home sales.

Another gold-backed exchange traded fund (ETF) was launched in January, sponsored by Barclays Global Investors, and traded on the American Stock Exchange with the symbol IAU. The iShares Comex Gold Trust follows the successful ETF, streetTRACKS Gold Trust, GLD, currently traded on the NYSE. If this one picks up interest anywhere close to GLD, it will certainly create some more demand for gold bullion, and may change a few bankers' attitudes. Both ETFs probably take some investment cash looking for a way to invest in gold, and didn't like funds.

fn       Fund                     1 mo   3 mo  12 mo   2 yr   3 yr
18 USERX US Global Gold Shares.   -4.8   -3.0    0.5   45.4  131.8
 2 FGLDX AIM Gold & Pr Mtls Inv   -4.9   -6.4   -0.9   31.7   90.3
19 UNWPX US Global World Pr Mns   -5.2   -0.6    3.1   76.0  178.4
17 TGLDX Tocqueville Gold     .   -5.5   -6.6   -3.0   35.2  115.5
22 VGPMX Vanguard Prec Metals .   -6.0    2.1    8.7   56.2   97.3
 4 INPMX AXP Precious Metals A.   -6.2   -9.8  -12.9   24.7   86.3
20 USAGX USAA Precious Metals .   -6.2   -8.0   -6.9   40.3  116.9
 6 FSAGX Fidelity Select Gold .   -6.4   -8.0   -7.1   11.2   62.3
 5 EKWBX Evergreen Prec Mtls B.   -6.5   -8.4   -3.1   41.8  118.5
21 INIVX Van Eck Intl Inv GoldA   -6.5   -9.0   -4.8   24.2  108.4
 7 SGGDX First Eagle Gold A   .   -6.7   -8.4   -3.5   19.3  117.1
 9 GOLDX Gabelli Gold         .   -6.9  -10.6   -7.3   21.5  103.6
12 OCMGX OCM Gold             .   -7.1  -10.3  -10.2   17.7  102.0
10 LEXMX ING Precious Metals A.   -7.1   -8.8   -7.9   22.5   82.7
 3 BGEIX Amer Cent Global Gold.   -7.2  -10.2   -3.9   24.1   89.6
15 RYPMX Rydex Prec Metals    .   -7.7  -13.5  -10.6   13.9   47.3
16 SGDAX Scudder Gold & Pr Mt A   -7.9  -10.6   -8.5   57.3  153.5
 8 FKRCX Franklin Gold & PrMt A   -8.0   -9.3   -3.7   30.9   68.7
11 MIDSX Midas Fund           .   -8.9   -7.6   -1.5   32.0   97.9
13 OPGSX Oppenheimer Gold A   .   -9.3   -8.2   -1.8   38.3   80.1
 1 ASA   ASA Ltd              .  -10.5  -13.0  -12.8   -6.5   74.9
14 PMPIX Profund Prec Mtls Ultr  -11.9  -16.9  -10.7   16.6	    

U.S. Global Gold Shares(USERX) took the top spot for January as all funds took a lose. Over the past twelve months, only three funds (VGPMX, UNWPX, and USERX) managed to come out positive, illustrating that gold funds have not been a good investment lately.

Last month, 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 January 31, 2005.

fn        Fund                     pos     nav
22 VGPMX Vanguard Prec Metals .   75.6   16.46
18 USERX US Global Gold Shares.    2.8    7.76
11 MIDSX Midas Fund           .    2.7    1.95
19 UNWPX US Global World Pr Mns    0.6   15.51
 8 FKRCX Franklin Gold & PrMt A   -1.2   17.33
 2 FGLDX AIM Gold & Pr Mtls Inv   -2.4    3.47
13 OPGSX Oppenheimer Gold A   .   -2.8   17.70
17 TGLDX Tocqueville Gold     .   -5.3   31.37
 7 SGGDX First Eagle Gold A   .   -9.8   15.59
 5 EKWBX Evergreen Prec Mtls B.  -10.3   29.94
21 INIVX Van Eck Intl Inv GoldA  -11.6    9.16
 6 FSAGX Fidelity Select Gold .  -19.3   25.59
 3 BGEIX Amer Cent Global Gold.  -20.0   11.13
 1 ASA   ASA Ltd              .  -23.7   37.75
10 LEXMX ING Precious Metals A.  -27.9    6.31
 9 GOLDX Gabelli Gold         .  -28.9   15.04
20 USAGX USAA Precious Metals .  -32.5   14.49
14 PMPIX Profund Prec Mtls Ultr  -40.5   26.42
16 SGDAX Scudder Gold & Pr Mt A  -41.4   16.11
15 RYPMX Rydex Prec Metals    .  -45.6   35.45
12 OCMGX OCM Gold             .  -48.4   10.73
 4 INPMX AXP Precious Metals A.  -59.5    8.81

Obviously, Vanguard is doing something right to distance itself from the other funds. We found that investigating the portfolios of the funds as closely as we can, VGPMX is not afraid to invest in other resource stocks instead of concentrating totally on gold and silver mines.

There are only four funds over 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 January) 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 .   759
 6 FSAGX Fidelity Select Gold .   660
 3 BGEIX Amer Cent Global Gold.   641
17 TGLDX Tocqueville Gold     .   485
 7 SGGDX First Eagle Gold A   .   477
 8 FKRCX Franklin Gold & PrMt A   436
 1 ASA   ASA Ltd              .   361
20 USAGX USAA Precious Metals .   309
19 UNWPX US Global World Pr Mns   267
 9 GOLDX Gabelli Gold         .   265
21 INIVX Van Eck Intl Inv GoldA   224
13 OPGSX Oppenheimer Gold A   .   220
15 RYPMX Rydex Prec Metals    .   213
16 SGDAX Scudder Gold & Pr Mt A   119
 2 FGLDX AIM Gold & Pr Mtls Inv   103
10 LEXMX ING Precious Metals A.    80
18 USERX US Global Gold Shares.    73
12 OCMGX OCM Gold             .    66
14 PMPIX Profund Prec Mtls Ultr    59
 4 INPMX AXP Precious Metals A.    56
11 MIDSX Midas Fund           .    52
 5 EKWBX Evergreen Prec Mtls B.    41

The largest gold fund is still Vanguard Precious Metals(VGPMX) and by gaining net asset value over the others will continue to be the top dog. Normally, the largest funds would have the greatest problems trading stocks due to the size and volume of trades, but Vanguard seems to have overcome it.

Repeat: 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. These numbers didn't change this month since no fund reached a new high or low.

In January, gold fell right through support levels predicted at 430 and 424, but I think that the movement of gold is driven much more by the dollar weakness and strength, and not by the gold price charts. That means that gold and gold funds are simply at the mercy of the dollar traders, meaning the financial industry. You can find out how the dollar is trading before gold opens and before gold stocks open in New York. That will give you a very good idea how gold will act that day, and specific gold stocks. If we see gold and the dollar no longer acting inversely, then reform the troops, and consider a new strategy.

By investigating Vanguard's (VGPMX) top ten holdings as of last fall, we find that they are willing to invest in more resource heavy stocks than just gold mines, which has been the historical place for gold funds to invest. The same can be said for U.S. Global's World Precious Minerals (UNWPX). It looks as if some other funds are also diversifying into other resource companies until gold gets its act together. In 2004, resource funds different from gold funds were among fund leaders due to the climbing prices of copper, lead, aluminum, petroleum, and other commodities. It's just a matter of time until precious metals gets on board this inflationary train, which has already left the station.

I don't think there is anything that the Bush Administration, Congress, or the Federal Reserve can do to stop the weakening dollar over the long term even if they wanted to, and that is up for discussion. The growing trade deficit is unstoppable short of a depression and higher interest rates will only be temporary help until the dollar market adjusts to each new fix. Meanwhile, gold will continue to go up and down like bumps on a ski slope, which always ends up further down the hill.