The U.S. economy grew at 3.5% in the fourth quarter and 3.4% for the year, still a robust rate for an economy with problems. Payrolls increased and wages were up. The housing market sent mixed signals as foreclosure rates increased nationwide and the annual sales numbers were terrible, but December new homes had a good month. The surprising Dow and S&P continued in their advances with the Dow getting close to another new all-time high by the end of January. On the other hand, Ford lost $12 billion.

The Federal Reserve held its short term rate at 5.25% and the long bond yield rose to 4.93%. Thirty year mortgages held near 6.25%. The dollar rose for most of the month, but ended weakly, closing at 84.67. More on this later.

Oil closed the month in a solid advance, finishing back up over $57.

The European Central Bank decided that accounting of gold reserves by its members cannot include gold loaned out or sold. That means that ECB reports in the near future may have to be more truthful to the gold market.

Secretary of The Treasury Paulson reported to Congress that he wanted a market determined, floating Chinese currency. The recent trip to China did not come out the way the Bush administration had hoped and Congress is irritated. Current trading forces trump almost anything Congress can do, but who knows what they might try. I don't think we are in any position to threaten China.

The new surge of manpower assigned to Iraq by President Bush looks to go on with or without the approval of Congress, but the suicide killings of innocents in Iraq continues. Only a surprising new situation there would affect the gold markets since the current plans are already accepted by the markets.

At the recent annual meeting of the World Economic Forum in Davos, Switzerland, central bank spokesmen warned the worldly rich investing establishment that economic growth and excessive credit expansion have increased the risk of derivative investments and that central banks could not be expected to rescue speculators. This was repeated by the U.S. Federal Reserve relative to Fannie Mae and Freddie Mac, both economic paper houses holding up the housing market with immense loads of credit. Credit growth can only go so far until there is an accounting and debt repaid. If it goes too far, the correction becomes a disaster, and the Fed is saying that they will not be the emergency solution. Apparently, the Fed recognizes the current situation to be economically reckless, but the attendees at Davos did not change their optimistic opinions that 2007 would be another booming economic year.

fn            Fund                1 mo   3 mo  12 mo   2 yr   3 yr
25 SLV   iShrs Silver Trust ETF    5.1   10.2                     
24 GLD   StrtTrks Gold Shrs ETF    2.6    7.6   14.3   53.6       
22 VGPMX Vanguard Prec Metals .    2.1    6.2   16.2   97.8  125.7
11 MIDSX Midas Fund           .    1.6    9.5   24.6  123.6  120.2
20 USAGX USAA Precious Metals .    0.8   10.2   24.2  112.6   99.5
15 INPMX Riversource Prec MtlsA    0.6    5.4   12.5   82.1   58.6
13 OPGSX Oppenheimer Gold A   .    0.5    9.3   19.6   99.7  105.7
 2 FGLDX AIM Gold & Pr Mtls Inv    0.3    7.0   10.4   79.8   78.2
21 INIVX Van Eck Intl Inv GoldA    0.1    9.2   21.4   96.2   87.3
19 UNWPX US Global World Pr Mns   -0.1    6.9   22.5  108.7  115.3
12 OCMGX OCM Gold             .   -0.1    9.0   12.7   84.5   65.7
16 RYPMX Rydex Prec Metals    .   -0.5    6.2    0.9   58.3   42.5
26 HUI   Amex Gold Bugs Index .   -0.7    5.4   -1.9   66.7   55.8
23 GDX   Mkt V Gold Miners ETF.   -0.7    4.3                     
10 LEXMX ING Precious Metals A.   -0.9    5.3    4.2   75.0   62.3
18 USERX US Global Gold Shares.   -1.1    4.1   19.3  107.2  108.2
 5 EKWBX Evergreen Prec Mtls B.   -1.2    6.4   11.9   90.8   86.9
17 TGLDX Tocqueville Gold     .   -1.2    8.9   15.1   87.7   82.8
 6 FSAGX Fidelity Select Gold .   -1.2    7.0    6.4   83.2   72.8
 7 SGGDX First Eagle Gold A   .   -1.4    3.4    2.4   59.5   55.7
 8 FKRCX Franklin Gold & PrMt A   -1.5    6.5    9.2   93.2   91.0
27 XAU   Phlx Gold/Silver Index   -1.7    1.9   -9.3   52.8   46.4
 9 GOLDX GAMCO Gold AAA       .   -1.8    4.3    8.2   81.2   69.5
 4 SGDAX DWS Gold & Prec Mtls A   -1.9    5.3    5.4   62.6   50.5
 3 BGEIX Amer Cent Global Gold.   -2.6    4.0    3.0   71.7   65.0
 1 ASA   ASA Ltd              .   -3.5    5.3   -7.4   73.1   57.3
14 PMPIX Profund Prec Mtls Ultr   -4.3   -0.7  -23.3   56.1   39.4

The two basic metal ETFs (GLD, SLV) led the way with good returns, leaving equities in the dust. For some reason gold funds and indices based on equities could not muster up the optimism that basic bullion displayed. Perhaps they are trying to tell us that the bullion advance is going to short circuit, or maybe investors will get on the gold fund bandwagon. Since we ended the month in an overbought condition, we will find out who the real leader is soon in the first week of February.

The average advance for funds in 2006 was 32%. To match that we will need to see bullion over $700.

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 January.

				      nav
fn          Fund                  pos   12/29/06  01/31/07
11 MIDSX Midas Fund           .   51.6     4.29     4.36
20 USAGX USAA Precious Metals .   50.6    27.78    28.01
18 USERX US Global Gold Shares.   49.5    16.07    15.90
 2 FGLDX AIM Gold & Pr Mtls Inv   45.0     6.08     6.10
23 GDX   Mkt V Gold Miners ETF.   44.6    39.88    39.60
25 SLV   iShrs Silver Trust ETF   39.2   128.64   135.16
21 INIVX Van Eck Intl Inv GoldA   37.7    16.00    16.02
24 GLD   StrtTrks Gold Shrs ETF   36.7    63.21    64.83
 5 EKWBX Evergreen Prec Mtls B.   35.3    54.82    54.16
 6 FSAGX Fidelity Select Gold .   34.7    36.50    36.05
17 TGLDX Tocqueville Gold     .   31.2    51.43    50.80
 8 FKRCX Franklin Gold & PrMt A   31.2    32.02    31.55
16 RYPMX Rydex Prec Metals    .   29.5    56.37    56.10
13 OPGSX Oppenheimer Gold A   .   29.3    28.98    29.13
19 UNWPX US Global World Pr Mns   28.3    27.26    27.24
12 OCMGX OCM Gold             .   27.0    18.00    17.98
22 VGPMX Vanguard Prec Metals .   25.6    28.05    28.64
 3 BGEIX Amer Cent Global Gold.   19.7    19.63    19.11
15 INPMX Riversource Prec MtlsA   18.8    14.00    14.08
26 HUI   Amex Gold Bugs Index .   17.1   338.24   336.01
 9 GOLDX GAMCO Gold AAA       .    8.9    24.98    24.54
10 LEXMX ING Precious Metals A.    8.4    10.50    10.41
 1 ASA   ASA Ltd              .    6.2    64.56    62.10
27 XAU   Phlx Gold/Silver Index  -11.2   142.25   139.89
 4 SGDAX DWS Gold & Prec Mtls A  -14.5    20.66    20.27
 7 SGGDX First Eagle Gold A   .  -16.2    20.84    20.54
14 PMPIX Profund Prec Mtls Ultr  -52.9    40.81    39.05

Most funds are still above their 52 week averages, but Profund is showing that timing gold equities is tough. However, if the market gets on a serious advance, PMPIX will certainly make a course correction.

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 .   3190
 6 FSAGX Fidelity Select Gold .   1424
 3 BGEIX Amer Cent Global Gold.   1003
 8 FKRCX Franklin Gold & PrMt A    901
19 UNWPX US Global World Pr Mns    878
17 TGLDX Tocqueville Gold     .    823
 7 SGGDX First Eagle Gold A   .    676
20 USAGX USAA Precious Metals .    636
 1 ASA   ASA Ltd              .    624
13 OPGSX Oppenheimer Gold A   .    612
21 INIVX Van Eck Intl Inv GoldA    408
 9 GOLDX GAMCO Gold AAA       .    375
23 GDX   Mkt V Gold Miners ETF.    340
18 USERX US Global Gold Shares.    235
16 RYPMX Rydex Prec Metals    .    195
 4 SGDAX DWS Gold & Prec Mtls A    166
14 PMPIX Profund Prec Mtls Ultr    163
 2 FGLDX AIM Gold & Pr Mtls Inv    148
11 MIDSX Midas Fund           .    135
10 LEXMX ING Precious Metals A.    120
12 OCMGX OCM Gold             .    105
15 INPMX Riversource Prec MtlsA     83
 5 EKWBX Evergreen Prec Mtls B.     73

We still have three gold funds (VGPMX, FSAGX, BGEIX) with over a billion dollars in assets under management, and three more in close pursuit. Worldwide, the gold market is starting to get more establishment attention, even causing some central banks to rethink their strategies regarding gold as a reserve, and we can expect the overall volume in these funds to increase. In addition, there are a reported six more ETFs in worldwide exchanges which will be focused on gold and silver, causing more buying and a resulting increase in demand for both bullion and equities.

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.

For January, the top two funds were Vanguard Precious Metals (VGPMX) and Midas Fund (MIDSX), but both were outgained by bullion ETFs, GLD and SLV. With bullion rising without bringing gold equities along is unusual, but either funds will catch on or bullion will drop back.

Looking back at 2006, we can see that bullion easily outpaced XAU and equities for most of the year. Are we going to see that happen again... Not on your life. This current condition exists only because investors are not sold on a gold advance continuing to the stratosphere. Most of the market is not ready for a big climbout. This is not to say that they may be wrong, but gold is an international vehicle and the rest of the world may already be on the bandwagon without U.S. equity investors.

By the end of the month, gold reached a new five month high of 652, but was in an overbought condition. Many analysts feel that this is a sure sign of a coming breakout to new all-time numbers and not a time to worry about overbought conditions. Very few gold analysts recommend selling. Buy on dips.

While gold gave us a great display in January, the Dow kept right on climbing, dragging the NASDAQ with it. How do they do it? Indications that the economy is doing well jump out in the face of a housing market about to roll over into a serious ditch. Maybe it won't. Meanwhile interest rates edged up slightly, but not enough to raise mortgage rates to where I thought they would be by now. They're still holding around 6.25%.

One of the obvious measurements of the value of the dollar and a valuable tool to predict gold movements, is the dollar index. However, the dollar index is a number which indicates the value of the U.S. dollar relative to other major currencies. While it may appear to rise, it is doing so relative to the other currencies, and since all currencies are inflating at a 10% to 20% rate, the estimated dollar increase of 8% may create an increase in the number of the index, giving the impression that the dollar is gaining value. However, the dollar is still going down in absolute value as it inflates, and that eventually will be proven by an increase in the price of hard assets, like gold.

As it turns out, currency growth in 2006 took a leap over currency growth in 2005. Since there is no sign of central banks slowing down their respective currency inflation rates, the dollar index will continue to fluctuate and gold prices will continue to rise in a sustained trend.

In the last newsletter I thought that we would see a continuing slide in the dollar index, but now I think we could see a weaker dollar with a numerical increase in the index. In fact, as currencies are inflated more by central banks, the index will become less of a long term indicator and be more of a short term signal.