The domestic economy gave signs of slowing, but the Federal Reserve short term rate was still 5.25% as the long bond yield began to sag, closing the month at 5.07%, well below the short term rate. One reason U.S. Treasuries are climbing is the increased interest in a safe haven following terrorist attacks in Nigeria and India, and U.S. Treasuries are still considered that by most of the world.

Consumer spending, the lifeblood of the American economy, had only a small gain in June, and July didn't appear to be going much different. Rising gasoline prices are a major tax on spending, and contributed to signs of increasing inflation in general. Nationwide, home sales decreased as for-sale inventories and mortgage defaults soared. These are not good signs for an economy. A deflating housing market takes away billions of consumer spending dollars.

The Secretary of the Treasury declared that a strong dollar was essential for our economy's growth, then asked that China let their currency float higher in value. He pointed out that the large fiscal deficit was coming down due to tax cuts. It is still too high to be sustainable.

Israel continued to bomb Lebanon and the Hezbollah militia, which is essentially an army in Lebanon supplied and supported by Iran and Syria. The number two Al-Qaida leader asked that Muslims rise up against Israel in a holy war, not just a little local fighting in Southern Lebanon. Muslim rallies against Israel in Iraq, Turkey, and Indonesia indicate that there is a large and meaningful religious trend not far under the surface that could put a serious crimp on oil from the Middle East. Since most goes to China and Europe, they are not going to argue much with Hezbollah, but will put on a good appearance.

Since neither side looks as it will quit, this conflict could go on for a long time.

fn            Fund                1 mo   3 mo  12 mo   2 yr   3 yr
19 UNWPX US Global World Pr Mns    1.9   -6.4   98.4  144.2  240.5
18 USERX US Global Gold Shares.    1.9   -4.9  106.6  143.8  195.8
 4 INPMX Riversource Prec MtlsA    1.9   -8.3   72.6   80.4  106.0
13 OPGSX Oppenheimer Gold A   .    1.8   -9.4   73.4  101.7  132.5
 7 SGGDX First Eagle Gold A   .    1.1   -7.7   59.1   70.3   86.7
20 USAGX USAA Precious Metals .    0.2   -7.7   83.9  102.9  140.5
17 TGLDX Tocqueville Gold     .    0.2  -10.6   66.8   87.8  115.5
15 RYPMX Rydex Prec Metals    .    0.1  -12.0   55.9   53.9   65.1
 5 EKWBX Evergreen Prec Mtls B.    0.1   -8.1   78.4   97.8  141.1
 6 FSAGX Fidelity Select Gold .    0.0  -10.7   69.0   90.7   88.1
10 LEXMX ING Precious Metals A.    0.0  -12.0   70.3   83.6   94.7
21 INIVX Van Eck Intl Inv GoldA   -0.1   -9.2   75.8   94.9  116.4
 2 FGLDX AIM Gold & Pr Mtls Inv   -0.2  -10.1   59.2   77.9  108.8
16 SGDAX Scudder Gold & Pr Mt A   -0.5   -9.9   63.1   68.1  116.1
11 MIDSX Midas Fund           .   -0.5   -7.1  104.6  129.0  155.1
 8 FKRCX Franklin Gold & PrMt A   -0.7   -9.2   73.3   93.7  120.2
 3 BGEIX Amer Cent Global Gold.   -0.9  -12.8   69.4   79.6   98.0
12 OCMGX OCM Gold             .   -0.9  -10.0   75.2   83.1   96.9
 9 GOLDX Gabelli Gold         .   -1.5  -10.7   72.3   84.6  103.5
22 VGPMX Vanguard Prec Metals .   -1.6   -6.4   56.8  122.3  167.3
14 PMPIX Profund Prec Mtls Ultr   -3.2  -17.2   74.5   80.8   89.7
 1 ASA   ASA Ltd              .   -3.4  -11.2   67.2   81.4   56.9

UNWPX, USERX, INPMX, and OPGSX took the lead for the month, but not by much. The last three months after May 10, have not been good, but it does look like it is setting a base. The last 12 months have been excellent even with this correction.

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 July 31, 2006.

					      nav
fn          Fund                  pos  06/30/06  07/31/06
18 USERX US Global Gold Shares.   63.2   15.49    15.79
19 UNWPX US Global World Pr Mns   61.9   28.86    29.42
22 VGPMX Vanguard Prec Metals .   52.4   29.16    28.69
20 USAGX USAA Precious Metals .   51.0   27.04    27.10
21 INIVX Van Eck Intl Inv GoldA   50.5   16.12    16.10
 4 INPMX Riversource Prec MtlsA   50.2   14.75    15.03
 5 EKWBX Evergreen Prec Mtls B.   50.0   53.26    53.33
 6 FSAGX Fidelity Select Gold .   49.5   34.45    34.46
 7 SGGDX First Eagle Gold A   .   48.6   23.75    24.00
11 MIDSX Midas Fund           .   46.6    4.05     4.03
12 OCMGX OCM Gold             .   45.3   18.55    18.38
13 OPGSX Oppenheimer Gold A   .   45.1   29.15    29.67
 1 ASA   ASA Ltd              .   43.9   63.85    61.71
16 SGDAX Scudder Gold & Pr Mt A   43.4   23.30    23.19
 2 FGLDX AIM Gold & Pr Mtls Inv   43.0    5.71     5.70
 8 FKRCX Franklin Gold & PrMt A   42.9   30.88    30.67
17 TGLDX Tocqueville Gold     .   42.2   50.21    50.31
10 LEXMX ING Precious Metals A.   41.3   10.69    10.69
 9 GOLDX Gabelli Gold         .   40.8   25.96    25.56
15 RYPMX Rydex Prec Metals    .   40.3   53.06    53.13
 3 BGEIX Amer Cent Global Gold.   38.2   18.62    18.46
14 PMPIX Profund Prec Mtls Ultr   20.6   46.61    45.10

July was another month of mixed results. Some were up and some were down, but not much in either direction. All seem to be creating a base from which to resume the climb, but there could still be a surprise for gold or gold stocks, or both. All are still well above their yearly averages.

The following list shows the approximate size of funds as measured in total assets under management. (In $millions as of the end of July) 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 .   3577
 6 FSAGX Fidelity Select Gold .   1263
 3 BGEIX Amer Cent Global Gold.    969
 7 SGGDX First Eagle Gold A   .    860
17 TGLDX Tocqueville Gold     .    837
 8 FKRCX Franklin Gold & PrMt A    806
19 UNWPX US Global World Pr Mns    721
 1 ASA   ASA Ltd              .    596
20 USAGX USAA Precious Metals .    554
13 OPGSX Oppenheimer Gold A   .    521
 9 GOLDX Gabelli Gold         .    414
21 INIVX Van Eck Intl Inv GoldA    345
15 RYPMX Rydex Prec Metals    .    201
16 SGDAX Scudder Gold & Pr Mt A    187
18 USERX US Global Gold Shares.    165
 2 FGLDX AIM Gold & Pr Mtls Inv    149
10 LEXMX ING Precious Metals A.    127
11 MIDSX Midas Fund           .    114
12 OCMGX OCM Gold             .    109
14 PMPIX Profund Prec Mtls Ultr    109
 4 INPMX Riversource Prec MtlsA     88
 5 EKWBX Evergreen Prec Mtls B.     71

Vanguard is, and will be for the near future, the largest gold fund, but all funds are increasing in investment funds. The gold market is getting more recognition along with gold funds, but there is much more to come. Most of the new funds available for gold investments has gone into the gold and silver ETFs.

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
11 MIDSX Midas Fund           .   1.48
14 PMPIX Profund Prec Mtls Ultr   1.47
18 USERX US Global Gold Shares.   1.43
19 UNWPX US Global World Pr Mns   1.20
20 USAGX USAA Precious Metals .   1.17
22 VGPMX Vanguard Prec Metals .   1.12
 5 EKWBX Evergreen Prec Mtls B.   1.10
10 LEXMX ING Precious Metals A.   1.09
 3 BGEIX Amer Cent Global Gold.   1.09
 8 FKRCX Franklin Gold & PrMt A   1.07
 9 GOLDX Gabelli Gold         .   1.07
21 INIVX Van Eck Intl Inv GoldA   1.07
12 OCMGX OCM Gold             .   1.05
 4 INPMX Riversource Prec MtlsA   1.02
13 OPGSX Oppenheimer Gold A   .   1.01
 2 FGLDX AIM Gold & Pr Mtls Inv   0.94 
 1 ASA   ASA Ltd              .   0.92
15 RYPMX Rydex Prec Metals    .   0.92
17 TGLDX Tocqueville Gold     .   0.89
16 SGDAX Scudder Gold & Pr Mt A   0.83
 6 FSAGX Fidelity Select Gold .   0.79
 7 SGGDX First Eagle Gold A   .   0.76

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.

July was a mixed month with gold funds, and we have now seen almost two months since the low on June 13. Gold equities are also mixed, with some making large up and down moves. The jury is still out and at the end of July we were not overbought or oversold.

Treasuries are climbing, forcing the long bond yield down to 5.07%, which indicates that the Fed will probably not raise the short term rate in August. Since I'm not in charge, take it for what it's worth. A dropping yield and rising bond value sometimes indicate a recession is on the way because deflationary forces are winning in the arena. It could be because central bankers are betting that the U.S. dollar is still the place to be. That is bearish for gold, but if there is no increase in the Fed rate, the dollar will probably come down, which is bullish for gold. Take your pick.

If the situation gets bad enough in Lebanon and the U.S. takes a serious position against Hezbollah, sleeper cells, suspected by the FBI to already be in the U.S. could put another crimp on our economy if they wanted to. Under certain situations, the stock market, including gold stocks, could crash, not just slide.

Gold stocks are not invulnerable if the decline is bad enough. In case of another terrorist act on U.S. territory, all stocks will probably fall. In 1987, as the stock market tumbled, gold equities fell also. A few gold funds fell 50% in three weeks. Gold bullion rose, peaking at $501 in December, 1987, but eventually joined in the decline.

Since most Muslim Arabs do not want Israel to exist, religious fanaticism will guarantee that the conflict will continue for some time. It will be at least as long as Israel wants to defend itself against a Hezbollah that wants to eliminate Israel. So far, the war has perhaps been a not so subtle force nudging gold upward. As it extends into August and September, I expect gold to rise more. There is, however, I believe, one more correction coming and that will mess up a few investors before gold is back on the launching pad.

If gold drops below 575, watch out.