By the end of the month, the Fed Fund rate was cut to 3.00% and the discount rate to 3.50% as signs of a recession became stronger. During the fourth quarter, 2007, the economy had slowed to .6%, the lowest in five years, and only 2.2% for the entire year.

A stimulus package of $150 billion was being ushered through Congress to satisfy the millions of citizens beginning to feel the recession coming on. Of course, that just adds to the national debt, and the dollar has been falling since it was offered as a solution.

By the end of the month, financial stocks had rallied, hoping that the Federal Reserve's action had come to the rescue. Gold paused, but had not given up its gains. January's gold price followed 2007's 31% gain with an advance of 10.9%, closing at 925.9. Silver closed at 16.94 after temporarily exceeding 17.00, another 28 year high. XAU ended the month at 186.30, but the long bond yield closed the month at 4.35%, well above the targer Fed Fund rate. The price of oil receded slightly to 92.

Real estate reports for 2007 were dismal. Foreclosures skyrocketed and new home sales declined. With interest rates declining, mortgage applications approached a four year high, but 80% were for refinancing an existing loan. New home sales continued to fall. Currently, more than 1% of households are in foreclosure proceedings, over 400,000 households

Subprime bank losses continue to surface as Countrywide Financial remains on the financial ropes even after support. A new problem surfaced with several bond insurers having financial problems, meaning that the problem may extend far into the financial world beyond the stock market and the housing market.

Even the International Monetary Fund (IMF) predicted that the U.S. growth rate in 2008 would be only 1.5%. They also predicted that emerging markets would carry the world's growth when the U.S. rested.

South Africa has managed to create an electrical supply emergency which has limited electricity to certain areas of the country, including many of the gold mines. Therefore, the supply of gold is being reduced immediately, approximately 2% of worldwide production, and may have given the gold price its recent boost. Since the problem will not be fixed soon, production will remain less than last year.

Meanwhile, China replaced South Africa as the number one gold producer.

fn            Fund                1 mo   3 mo  12 mo   2 yr   3 yr
24 SLV   iShrs Silver Trust ETF   14.4   17.1   24.4   	        
25 HUI   Amex Gold Bugs Index .   12.1    5.5   36.6   65.8  127.7
23 GLD   StrtTrks Gold Shrs ETF   10.8   16.3   41.0   77.2  116.5
17 USERX US Global Gold Shares.   10.8    1.5   29.3   92.2  167.9
 5 EKWBX Evergreen Prec Mtls B.   10.4    1.1   37.0   83.6  161.4
22 GDX   Mkt V Gold Miners ETF.    9.9   -0.5   27.1  	         
 3 BGEIX Amer Cent Global Gold.    9.3   -0.7   28.5   58.4  120.6
 7 SGGDX First Eagle Gold A   .    8.9    2.7   36.4   62.8  117.5
19 USAGX USAA Precious Metals .    8.8    0.3   37.4   98.3  192.1
13 PMPIX Profund Prec Mtls Ultr    8.8   -8.0   43.0   42.2  123.3
 8 FKRCX Franklin Gold & PrMt A    8.7   -0.7   38.6   79.9  167.8
 4 SGDAX DWS Gold & Prec Mtls A    8.6   -0.8   37.5   72.9  123.5
 6 FSAGX Fidelity Select Gold .    8.5   -0.8   37.6   69.7  152.0
20 INIVX Van Eck Intl Inv GoldA    8.4   -0.6   37.7  100.3  170.2
26 XAU   Phlx Gold/Silver Index    7.5   -1.0   33.2   45.5  103.4
 9 GOLDX GAMCO Gold AAA       .    7.1   -2.8   37.1   78.2  148.5
 2 FGLDX AIM Gold & Pr Mtls Inv    6.9   -1.1   30.9   68.8  135.5
 1 ASA   ASA Ltd              .    6.6    2.5   33.2   54.0  130.5
11 OCMGX OCM Gold             .    6.5   -0.5   31.5   78.9  142.5
15 RYPMX Rydex Prec Metals    .    6.4   -2.5   28.2   55.1  102.9
16 TGLDX Tocqueville Gold     .    5.3   -5.8   19.5   64.0  124.2
18 UNWPX US Global World Pr Mns    4.9   -7.0   26.5   91.6  163.9
14 INPMX Riversource Prec MtlsA    4.7   -9.1   17.7   60.1  114.3
12 OPGSX Oppenheimer Gold A   .    3.0   -8.1   33.7   93.1  167.0
21 VGPMX Vanguard Prec Metals .    0.4   -6.2   29.9   76.2  156.8
10 MIDSX Midas Fund           .   -1.3  -12.2   27.9   86.5  186.0

Silver's gain of 14.4% was the monthly leader, and gold's advance, representd by GLD's 10.8% for January exceeded most gold fund gains. Part of that was due to a dip in resource stocks and the stock market in general sliding for most of the month, holding back most gold equities. The statistics over the last three months coincide with the top set in early November, but over the twelve month period gold stocks were still a great investment.

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   12/31/07 01/31/08
 7 SGGDX First Eagle Gold A   .   95.7    23.97    26.11
24 SLV   iShrs Silver Trust ETF   95.6   146.97   168.18
23 GLD   StrtTrks Gold Shrs ETF   92.1    82.46    91.40
 5 EKWBX Evergreen Prec Mtls B.   91.0    62.30    68.80
19 USAGX USAA Precious Metals .   86.2    32.52    35.39
17 USERX US Global Gold Shares.   85.8    16.13    17.88
 6 FSAGX Fidelity Select Gold .   85.8    39.88    43.27
 1 ASA   ASA Ltd              .   85.4    75.17    80.20
 8 FKRCX Franklin Gold & PrMt A   83.9    36.38    39.55
 3 BGEIX Amer Cent Global Gold.   82.8    22.34    24.43
 2 FGLDX AIM Gold & Pr Mtls Inv   80.2     7.42     7.94
 4 SGDAX DWS Gold & Prec Mtls A   77.0    21.48    23.34
11 OCMGX OCM Gold             .   76.3    20.78    22.13
26 XAU   Phlx Gold/Silver Index   75.5   173.32   186.30
 9 GOLDX GAMCO Gold AAA       .   74.2    28.41    30.44
20 INIVX Van Eck Intl Inv GoldA   74.0    17.79    19.30
15 RYPMX Rydex Prec Metals    .   70.3    67.60    71.95
25 HUI   Amex Gold Bugs Index .   70.2   409.37   459.00
22 GDX   Mkt V Gold Miners ETF.   63.9    45.83    50.35
21 VGPMX Vanguard Prec Metals .   63.4    33.29    33.45
12 OPGSX Oppenheimer Gold A   .   53.0    35.57    36.66
13 PMPIX Profund Prec Mtls Ultr   51.5    47.79    52.02
16 TGLDX Tocqueville Gold     .   45.9    48.84    51.45
18 UNWPX US Global World Pr Mns   42.9    26.25    27.53
14 INPMX Riversource Prec MtlsA   42.9    11.74    12.29
10 MIDSX Midas Fund           .   26.9     5.64     5.57

All funds are well above their 52 week average, especially when recent distributions are considered. The latest gold stock rally began on December 18 and produced excellent gains to end the year and extend through most of January. That extended period suggests that we are due for a correction.

Known distributions by gold funds, most done in December:

ASA 2.90
BGEIX .11
EKWBX 4.90
FGLDX .05
FKRCX 3.84
FSAGX 3.63
GOLDX 3.01
INIVX 2.56
INPMX 4.09
OCMGX 1.42
OPGSX 2.24
PMPIX 3.55
SGDAX 4.17
SGGDX 1.76
TGLDX 8.78
USAGX 2.85
USERX 2.43
UNWPX 6.60
VGPMX 3.74

MIDSX 0.00
RYPMX 0.00

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
21 VGPMX Vanguard Prec Metals .   4150
 6 FSAGX Fidelity Select Gold .   1712
12 OPGSX Oppenheimer Gold A   .   1401
 8 FKRCX Franklin Gold & PrMt A   1196
 3 BGEIX Amer Cent Global Gold.   1192
19 USAGX USAA Precious Metals .    993
16 TGLDX Tocqueville Gold     .    981
 7 SGGDX First Eagle Gold A   .    858
18 UNWPX US Global World Pr Mns    847
 1 ASA   ASA Ltd              .    658
20 INIVX Van Eck Intl Inv GoldA    586
 9 GOLDX GAMCO Gold AAA       .    477
22 GDX   Mkt V Gold Miners ETF.    433
17 USERX US Global Gold Shares.    264
10 MIDSX Midas Fund           .    247
 4 SGDAX DWS Gold & Prec Mtls A    208
 2 FGLDX AIM Gold & Pr Mtls Inv    176
15 RYPMX Rydex Prec Metals    .    146
11 OCMGX OCM Gold             .    140
 5 EKWBX Evergreen Prec Mtls B.     93
13 PMPIX Profund Prec Mtls Ultr     89
14 INPMX Riversource Prec MtlsA     82

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
13 PMPIX Profund Prec Mtls Ultr    1.51
25 HUI   Amex Gold Bugs Index .    1.26
14 INPMX Riversource Prec MtlsA    1.24
10 MIDSX Midas Fund           .    1.16
22 GDX   Mkt V Gold Miners ETF.    1.15
20 INIVX Van Eck Intl Inv GoldA    1.11
26 XAU   Phlx Gold/Silver Index    1.09
12 OPGSX Oppenheimer Gold A   .    1.07
 9 GOLDX GAMCO Gold AAA       .    1.06
 6 FSAGX Fidelity Select Gold .    1.06
19 USAGX USAA Precious Metals .    1.04
 4 SGDAX DWS Gold & Prec Mtls A    1.04
 8 FKRCX Franklin Gold & PrMt A    1.03
 1 ASA   ASA Ltd              .    1.02
 3 BGEIX Amer Cent Global Gold.    1.01
 5 EKWBX Evergreen Prec Mtls B.    1.01
18 UNWPX US Global World Pr Mns    1.01
17 USERX US Global Gold Shares.    0.98
11 OCMGX OCM Gold             .    0.96
24 SLV   iShrs Silver Trust ETF    0.95
21 VGPMX Vanguard Prec Metals .    0.91
15 RYPMX Rydex Prec Metals    .    0.88
 2 FGLDX AIM Gold & Pr Mtls Inv    0.87
16 TGLDX Tocqueville Gold     .    0.86
23 GLD   StrtTrks Gold Shrs ETF    0.84
 7 SGGDX First Eagle Gold A   .    0.81

The beta for each fund may change as the fund advances and declines, but the general position on the list 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.

As gold reached new highs, XAU and gold stocks began to give up gains. The overall market is stumbling, putting a major brake on all equities. Therefore, gold stocks and funds are not keeping up with gold. If gold corrects, gold stocks will still back up, but eventually they will equalize and follow gold up. The ratio of XAU to gold is 186.3/925.7 = .201. Below .19 has historically been a great time to buy.

Previous leaders Vanguard (VGPMX) and Midas (MIDSX) had a weak month partially due to their portfolio selection. Since they are heavily loaded with resource stocks, which did not advance with gold, returns were low.

The problem in South Africa gold production will quickly become a factor in the gold price since the problem is not easily fixable.

Since China has become the largest producer, I can see them wanting the price of gold to rise, and what better way than to buy on the market with their excessive dollars. That would cause the dollar to drop more and support their home industry.

A major recession in the U.S. might keep gold from its projected upward path, especially stocks, but if other emerging markets can continue to grow, the price of metals should continue to rise.

As the dollar slides, U.S. property and assets become cheaper to foreign buyers, and money can be expected to flow inbound as we sell our country. Because of the trade deficit, we need over $2 billion daily inbound.

The big difference between the long bond yield at 4.35% and the short term rate of 3.00% indicates that someone in the marketplace thinks future rates will be higher. Think inflation.