Then in Hong Kong, ex-Chairman Greenspan suggested that the economy may be heading for a recession, and the Commerce Department reported that durable goods, a good indication of economic productivity, had been down in January more than expected. In Afghanistan, a suicide assassination attempt was made on Vice President Cheney. In Japan, the yen carry trade of borrowing yen cheap and investing in U.S. treasures with a higher interest rate began to unwind when the Bank of Japan raised its overnight interest rate to 0.5%. In the U.S., sales of new homes fell 16% in January, even though existing homes went up 3%. Someone noted that several subprime mortgage lenders recently folded because of lack of business and lack of payments from defaulting loans, in other words, bankrupt. Maybe the economy was slowing.

The market slide started in China after the Chinese government acted to cut down on excessive speculation in its market by raising interest rates slightly. After the Shanghai market dropped over 9%, Europe and New York followed, with the Dow dropping 3.2%. Gold followed the rest of the stock market into the slump, losing over $20 on the 27th. Markets partially recovered the very next day, but it pointed out the precarious condition that most markets are in, over-extended and over-leveraged. Debt rules.

Previously during the month, the Commerce Department had reported that the trade deficit for 2006 was $763 billion, $63 billion per month on average, and almost 7% of GDP. Historically, an economy whose trade deficit exceeded 4.5% of GDP fell into a financial crisis. We are far beyond that, but no one in Washington seems to be worrying about it. Perhaps it's because there isn't much they can do about it. It's no secret. The trend is set; we will continue until the balloon pops. Tuesday was the first leak.

Looking for a safe haven when stocks and gold fell, investors flocked back to bonds. The long bond yield dropped to 4.63% before edging up to close the month at 4.67%.

The many excuses were weak. Markets worldwide have been over-extended for weeks due to the vast liquid cash produced by central banks, including ours, so the plunge was expected by many, but not of this magnitude. Gold stocks fell right away, but it took gold a few hours to get on the slide, mostly after the futures markets were closed.

For the month, gold closed at 669.4, up from 652, and silver finished at 14.25, up from 13.51. However, gold stocks and funds were not so fortunate. Bullion still stands out over equities. XAU was down slightly at 139.66 after reaching 147.75, a ten week high. The dollar dropped from 84.62 to 83.57, which should have supported a rise in gold's price, but didn't.

fn            Fund                1 mo   3 mo  12 mo   2 yr   3 yr
25 SLV   iShrs Silver Trust ETF    4.5    1.1		            
11 MIDSX Midas Fund           .    3.7    1.8   32.2  114.2  122.7
17 TGLDX Tocqueville Gold     .    3.4    1.5   23.6   80.0   86.8
13 OPGSX Oppenheimer Gold A   .    2.7    1.4   33.0   88.2  104.0
 7 SGGDX First Eagle Gold A   .    2.7   -0.6   13.8   55.0   55.7
24 GLD   StrtTrks Gold Shrs ETF    2.5    3.2   18.6   52.8       
12 OCMGX OCM Gold             .    2.4   -1.2   23.9   77.3   64.7
 8 FKRCX Franklin Gold & PrMt A    2.3   -0.9   22.6   83.6   90.8
21 INIVX Van Eck Intl Inv GoldA    2.2   -0.1   31.0   86.4   89.2
 4 SGDAX DWS Gold & Prec Mtls A    2.2   -3.4   19.3   55.8   52.2
20 USAGX USAA Precious Metals .    2.0    0.7   33.1  103.0  100.9
 5 EKWBX Evergreen Prec Mtls B.    1.7   -2.7   24.0   80.4   80.6
19 UNWPX US Global World Pr Mns    1.5   -1.8   27.5   92.0  109.2
 1 ASA   ASA Ltd              .    1.4   -1.6    4.7   62.9   57.2
 3 BGEIX Amer Cent Global Gold.    1.4   -5.1   15.4   62.6   61.8
 6 FSAGX Fidelity Select Gold .    1.4   -2.8   15.7   73.1   74.6
 2 FGLDX AIM Gold & Pr Mtls Inv    1.1   -2.0   20.7   67.4   72.9
26 HUI   Amex Gold Bugs Index .    1.1   -4.4   11.1   57.8   51.2
 9 GOLDX GAMCO Gold AAA       .    1.1   -4.2   20.8   71.2   67.5
22 VGPMX Vanguard Prec Metals .    1.0    2.4   22.8   81.6  122.8
23 GDX   Mkt V Gold Miners ETF.    0.8   -5.0        	        
15 INPMX Riversource Prec MtlsA    0.6   -3.2   20.6   71.6   49.9
16 RYPMX Rydex Prec Metals    .    0.5   -4.4   13.2   48.3   36.0
18 USERX US Global Gold Shares.    0.5   -4.8   26.5   94.7  101.7
27 XAU   Phlx Gold/Silver Index   -0.2   -6.4    4.7   41.1   39.9
10 LEXMX ING Precious Metals A.   -0.5   -3.3   10.2   61.3   59.0
14 PMPIX Profund Prec Mtls Ultr   -1.3  -12.7   -5.1   36.4   29.4

SLV was once again ahead of the funds for the month, followed closely by Midas Fund(MIDSX) and Tocqueville Gold (TGLDX). Even with the big plunge, only two funds were down for the month, joining XAU. The late drop took all profits out of a good move over the last two months, so the three month record was mostly negative. However, the last twelve month period is still excellent.

The average advance for funds last year 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 February:

                                              nav
fn          Fund                  pos   01/31/07  02/28/07
11 MIDSX Midas Fund           .   66.2     4.36     4.52
25 SLV   iShrs Silver Trust ETF   60.5   135.16   141.25
20 USAGX USAA Precious Metals .   57.9    28.01    28.58
18 USERX US Global Gold Shares.   51.5    15.90    15.98
 2 FGLDX AIM Gold & Pr Mtls Inv   50.8     6.10     6.17
24 GLD   StrtTrks Gold Shrs ETF   50.7    64.83    66.48
23 GDX   Mkt V Gold Miners ETF.   50.2    39.60    39.90
21 INIVX Van Eck Intl Inv GoldA   45.5    16.02    16.37
17 TGLDX Tocqueville Gold     .   43.9    50.80    52.54
 5 EKWBX Evergreen Prec Mtls B.   42.3    54.16    55.07
 6 FSAGX Fidelity Select Gold .   40.7    36.05    36.54
 8 FKRCX Franklin Gold & PrMt A   40.7    31.55    32.28
13 OPGSX Oppenheimer Gold A   .   38.0    29.13    29.92
12 OCMGX OCM Gold             .   35.3    17.98    18.42
19 UNWPX US Global World Pr Mns   32.9    27.24    27.64
16 RYPMX Rydex Prec Metals    .   32.4    56.10    56.40
22 VGPMX Vanguard Prec Metals .   29.9    28.64    28.93
 3 BGEIX Amer Cent Global Gold.   26.0    19.11    19.38
26 HUI   Amex Gold Bugs Index .   21.9   336.01   339.80
15 INPMX Riversource Prec MtlsA   20.7    14.08    14.16
 1 ASA   ASA Ltd              .   13.2    62.10    63.00
 9 GOLDX GAMCO Gold AAA       .   12.8    24.54    24.81
10 LEXMX ING Precious Metals A.    6.6    10.41    10.36
 7 SGGDX First Eagle Gold A   .   -7.2    20.54    21.09
 4 SGDAX DWS Gold & Prec Mtls A   -7.7    20.27    20.71
27 XAU   Phlx Gold/Silver Index  -12.0   139.89   139.66
14 PMPIX Profund Prec Mtls Ultr  -56.4    39.05    38.55

Credit must go to Midas Fund (MIDSX) and USAA (USAGX) for holding on to most of their gains over the last year. As a sector, all but four funds are still above their 52 week averages.

The following list shows the approximate size of funds as measured in total assets under management. (In $millions as of the end of February) 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 .   3223
 6 FSAGX Fidelity Select Gold .   1444
 3 BGEIX Amer Cent Global Gold.   1018
 8 FKRCX Franklin Gold & PrMt A    922
19 UNWPX US Global World Pr Mns    890
17 TGLDX Tocqueville Gold     .    851
 7 SGGDX First Eagle Gold A   .    694
20 USAGX USAA Precious Metals .    649
 1 ASA   ASA Ltd              .    633
13 OPGSX Oppenheimer Gold A   .    629
21 INIVX Van Eck Intl Inv GoldA    417
 9 GOLDX GAMCO Gold AAA       .    379
23 GDX   Mkt V Gold Miners ETF.    343
18 USERX US Global Gold Shares.    236
16 RYPMX Rydex Prec Metals    .    196
 4 SGDAX DWS Gold & Prec Mtls A    169
14 PMPIX Profund Prec Mtls Ultr    161
 2 FGLDX AIM Gold & Pr Mtls Inv    150
11 MIDSX Midas Fund           .    140
10 LEXMX ING Precious Metals A.    119
12 OCMGX OCM Gold             .    107
15 INPMX Riversource Prec MtlsA     83
 5 EKWBX Evergreen Prec Mtls B.     74

Three funds are well over a billion dollars in assets, but GLD reported its total holding exceeded $10 billion in bullion. If this slide becomes more serious, expect funds to lose assets, including GLD.

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.

Gold and gold stocks had a great month until the last two days when the overall market meltdown took gold down with it. Almost everything was over-extended and a correction was in order, but the one day drop was definitely abrupt.

The fact that all equities drop when the Dow crashes is to be expected, viewing history. However, since gold also joined in the slide, it indicates the problem is financial, not fundamental economics. It also looks like someone may have even planned it, if it could have been.

My opinion on this is simple: we, as a nation, are overconsuming and building up debt instead of savings. There is a lack of savings because interest rates are so low it's not worth it. Interest rates are low because of the Federal Reserve's low short term rate, now 5.25%, and U.S. Treasury policies to increase the money supply, now exceeding 8% per year. That may be short term stimulating for an economy, causing the stock market to go up and opening the mortgage loan market to anyone who can sign his name. Therefore, the real estate boom resulted. In addition, because the other central banks can see what we're doing, they are also increasing their money supplies, all in excess of 10%. As a result, imports are relatively cheap and we don't have much inflation yet. But we will, and the gold market is giving us a big signal.

With an additional $63 billion in greenbacks each month, foreign banks must put it somewhere. One of those places is U.S. debt, Treasury Bills. Foreigners now hold over 45% of U.S. long term debt, and it increases every month. Not too long ago, it was only 12%. Obviously, it can't go over 100%, but we're getting there faster than you or I would like. Sometime before it gets there, the value of the dollar will significantly erode, and our nation will see turmoil you cannot imagine as prices rise and the cost of living places a big percentage of Americans in poverty. At that point, it would be nice to have a few spendable gold coins in your hands, not in an account somewhere. I'm not talking numismatic coins.

Hopefully, our leaders will do something to correct the problem before then, but since raising interest rates to encourage savings is not politically or economically acceptable and putting tariffs on imports will disrupt sacred free trade, I am discouraged about the long term outlook. Anyone making ten year economic predictions is wasting his time.

In the long run, we, as a nation, cannot continue to go down this path. In the short run, with continued growth and without a financial crisis we may continue to cruise through the troubled waters. But not forever. I think we will see extensive market turmoil before the end of 2008, maybe in 2007. It could be initiated by a housing market collapse worse than expected with higher interest rates, a military event such as an invasion of Iran which shuts down significant oil imports and jacks up oil to $100 plus, a Congress that can't agree with the president over major policies and keeps spending, or it could be an external event, such as a meltdown in foreign markets. I hope I'm wrong, but I don't think I will be, and gold will be one of the few good investments.

It is looking more like the 70's all over again, and that means a higher price for gold.