One factor which started the slide was Japan's decision in March to no longer support the dollar by purchasing large numbers of U.S. Treasury bonds. As a result, the long bond yield climbed over the month from 4.77% to 5.31%, and U.S. mortgage rates ended the month back over 6%, not seen since last November. This increase in yields convinced some analysts that the Federal Reserve would have to raise the federal funds rate soon, and thereby indirectly strengthen the dollar. Gold investors didn't like that idea and many jumped ship. On the other hand, higher mortgages were not high enough to slow down new home sales around the country as the housing boom continues.

The GDP expanded at a rate of 4.2% annually for the first quarter through March, and many corporations were reporting acceptable to good earnings, giving a boost to the idea that interest rates would probably go up soon.

Another catalyst which seemed to jolt metals prices in late April was a belief that all commodities were overpriced and were due for a correction. The thought that China was trying to restrain its bubble-like economy by limiting credit was enough to cause many speculators to bail out of precarious commodity positions. Silver was the prime example as speculators had previously pushed the price to a record high at 8.21. In addition, over the past three months, most gold equities had refused to reach new highs as gold pushed through 420.

In reality, China's economy hasn't slowed down yet; they are just talking about the possibility of controlling a runaway situation and are not trying to reduce growth. Their grain production is at a 15 year low and their crude oil demands require importing 36%. Their real estate values are up just like most of the rest of the world, so they wanted to limit credit, which is fueling the unproductive part of the boom. While they have a large trade surplus with the U.S., they have a trade deficit with the rest of the world, especially Asia. This deficit has given unusually strong growth to their partners. The fear of this growth slowing had an unusually strong effect on world commodity markets, including metals.

The price of oil closed April at 37.42 as gasoline prices reached another high due to limited supplies.

fn       Fund                     1 mo   3 mo  12 mo   2 yr   3 yr
21 VGPMX Vanguard Prec Metals .  -17.3  -13.7   40.3   30.2   92.3
 6 SGGDX First Eagle Gold     .  -19.1  -12.0   24.4   43.7  177.7
 1 ASA   ASA Ltd              .  -19.7  -17.4    0.1   12.4   95.8
10 FGLDX INVESCO Gold & Pr Mtl.  -19.8  -13.0   34.1   30.8   99.5
16 TGLDX Tocqueville Gold     .  -20.0  -13.5   37.5   44.7  157.0
13 OPGSX Oppenheimer Gold A   .  -20.3  -14.0   41.0   27.9   85.3
 7 FKRCX Franklin Gold & PrM A.  -20.3  -13.5   36.9   21.7   67.5
19 USAGX USAA Gold            .  -20.5  -13.9   47.6   53.4  170.7
15 SGDAX Scudder Gold & Pr Mts.  -20.8  -13.4   67.0   83.8  175.0
 9 LEXMX ING Precious Metals  .  -21.1  -14.8   26.7   30.3  113.5
 8 GOLDX Gabelli Gold         .  -21.7  -15.5   28.9   35.0  143.6
 4 EKWBX Evergreen Prec Mtls B.  -21.7  -13.5   45.9   50.9  147.2
18 UNWPX US Global World PrecM.  -21.8  -11.3   71.4   70.2  199.7
20 INIVX Van Eck Intl Inv GoldA  -22.0  -15.5   30.4   34.4  139.4
 2 BGEIX Amer Cent Global Gold.  -22.8  -14.7   29.5   29.1  128.6
12 OCMGX Monterey OCM Gold    .  -22.9  -15.8   25.4   43.9  146.6
 5 FSAGX Fidelity Select Gold .  -23.0  -17.8   15.6   14.2   87.1
17 USERX US Global Gold Shrs  .  -23.2  -12.6   50.7   40.2  150.5
11 MIDSX Midas Fund           .  -23.3  -13.6   34.6   35.7   96.2
 3 INPMX AXP Precious Metals A.  -24.4  -15.9   41.2   36.1   96.4
14 RYPMX Rydex Prec Metals    .  -25.1  -15.6   26.9   15.2   65.2

Vanguard Precious Metals (VGPMX) had the distinction of losing the least for the month and took the top spot. All funds had a disastrous month as gold fell and stocks collapsed. The twelve month period is still positive, but most gains from last summer have disappeared into the economic void.

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 April 30, 2004.

fn        Fund                    pos     nav
18 UNWPX US Global World PrecM.   29.3   13.72
15 SGDAX Scudder Gold & Pr Mts.   15.6   16.51
 4 EKWBX Evergreen Prec Mtls B.   14.0   26.44
21 VGPMX Vanguard Prec Metals .   11.5   13.20
16 TGLDX Tocqueville Gold     .    5.1   29.00
 6 SGGDX First Eagle Gold     .    4.5   14.06
19 USAGX USAA Gold            .    3.7   13.42
10 FGLDX INVESCO Gold & Pr Mtl.    2.1    3.08
 3 INPMX AXP Precious Metals A.   -1.3    9.55
17 USERX US Global Gold Shrs  .   -3.2    6.79
11 MIDSX Midas Fund           .   -3.7    1.71
 7 FKRCX Franklin Gold & PrM A.   -3.9   15.17
13 OPGSX Oppenheimer Gold A   .   -4.0   15.87
20 INIVX Van Eck Intl Inv GoldA   -8.9    8.91
 2 BGEIX Amer Cent Global Gold.  -14.1    9.96
 9 LEXMX ING Precious Metals  .  -15.3    5.98
 8 GOLDX Gabelli Gold         .  -16.4   13.75
14 RYPMX Rydex Prec Metals    .  -21.8   33.21
12 OCMGX Monterey OCM Gold    .  -25.3   10.37
 1 ASA   ASA Ltd              .  -34.9   34.78
 5 FSAGX Fidelity Select Gold .  -35.7   22.30

This indicator shows that only eight funds are still above their 52 week average, and the last seven seem to have fallen out of bed but are still well above their yearly lows.

The following list shows the approximate size of funds as measured in total assets under management in $millions. (As of April 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 .   616
 2 BGEIX Amer Cent Global Gold.   543
21 VGPMX Vanguard Prec Metals .   473
16 TGLDX Tocqueville Gold     .   400
 7 FKRCX Franklin Gold & PrM A.   348
 6 SGGDX First Eagle Gold     .   340
 1 ASA   ASA Ltd              .   333
19 USAGX USAA Gold            .   244
20 INIVX Van Eck Intl Inv GoldA   236
18 UNWPX US Global World PrecM.   235
13 OPGSX Oppenheimer Gold A   .   160
 8 GOLDX Gabelli Gold         .   140
15 SGDAX Scudder Gold & Pr Mts.   136
10 FGLDX INVESCO Gold & Pr Mtl.   108
 9 LEXMX ING Precious Metals  .    86
17 USERX US Global Gold Shrs  .    65
14 RYPMX Rydex Prec Metals    .    56
 3 INPMX AXP Precious Metals A.    55
11 MIDSX Midas Fund           .    54
12 OCMGX Monterey OCM Gold    .    38
 4 EKWBX Evergreen Prec Mtls B.    29

While these numbers had increased over the past year, a total of several hundreds of millions of dollars in assets were lost this month by all funds. As the nav decreases, each fund manager recognizes that his overall asset base is decreasing, and in general, his management fee. They don't like that any more than you do.

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 have not changed since December's high.

April was a disaster for gold funds. While Vanguard (VGPMX) was at the top of the list, it wasn't anything to brag about. All gold equities had a bad month due to a very negative market attitude toward commodities and gold in particular.

By the end of the month, many gold analysts were questioning the continuation of this correction and were carefully watching the price of gold as it fell below its 200 day average. Many felt that gold and gold equities are oversold but could still see gold falling as low as 365 before it reversed. Most see it as a buying opportunity.

I think that most of the decline is over. All indicators I follow show an oversold situation. Long term fundamentals haven't changed as the twin deficits are still out there, and the dollar has reached a six month high and due to cycle down. A resulting rally could be the start of the next bull move, or it could just be another correction up before it starts back down due to rising interest rates.

As I mentioned in the April newsletter, gold has a current tendency to go down as bond yields increase, which is what happened, so we may be in for some more gold decline if rates continue upward. I expect silver and gold to find a base soon, and gold stocks should give us a positive signal.

The turmoil with suicide bombers worldwide has quickly become unimportant to the gold markets, having practically no influence. Iraq has become background noise to the markets, and no longer major news. Unless something big happens, I don't expect gold to pay much attention.