Each month we need to sit back and see what really happened, not what we hope happened, or what our political ideology says happened. In August, gold's advance was in the face of a stronger dollar, which edged higher from 97.14 to 98.83. An increase in international demand for precious metals came from somewhere other than the U.S. It was partially due to many countries expanding their money supply over the past three months to keep a stable trading relationship with the U.S. dollar. These monetary expansions have created more available money and this time around there are an increased number of worldwide investors who think gold is better than other places to put their money.

While U.S. GDP growth was measured at 3.1% during the second quarter, there was no job growth, and the manufacturing sector lost jobs, again. Most of the measured growth was due to government spending, primarily military. Without looking too deep, Wall Street bulls believe that a new bull market has begun as personal income and consumer spending were both up. Although real estate refinancing has slowed dramatically, new home sales and existing home sales in July were still huge. New car sales moved back to record levels.

With the stronger dollar as measured by the dollar index, the euro fell from 1.122 to 1.099. However, with the Bank of Japan no longer selling yen, the yen gained value from 120.4 to 116.6 yen/dollar as many investors got on the yen bandwagon. This gave a big push to the Japanese markets, which set a four month high. Since the U.S. long bond yield dropped from 5.41% to 5.22%, someone is still buying U.S. treasuries.

With China's boom continuing, Asian economies are being helped as China has increased its imports from its neighbors. As a result, Asian economies have shifted into high gear and are now growing at high rates, including Thailand, Singapore, and Malaysia.

Some gold analysts figured out that there is an increased amount of money moving into gold mining companies, particularly smaller Canadian mines and exploration companies. Since mine production continues to decrease each year, it's obvious that we need more investments in these smaller companies to find more resources. In the past ten years, many of the middle range companies have been gobbled up by the remaining few in an attempt to gather known in-ground resources

Britain's economy is experiencing the same home refinancing boom with soaring home prices, increased consumer debt environment, and power failures. We are not alone.

After July's surge in silver, August was non-eventful, other than holding above the five dollar level.

fn         Fund                   1 mo   3 mo  12 mo   2 yr   3 yr
15 SCGDX Scudder Gold & Pr Mt S   19.8   37.6   58.7  130.9  163.2
18 UNWPX US Global World PrecM.   17.2   27.4   42.5  141.0  104.3
17 USERX US Global Gold Shrs  .   16.3   26.0   40.6  135.7  126.4
19 USAGX USAA Gold            .   15.4   28.8   39.5  126.6  164.5
13 OPGSX Oppenheimer Gold A   .   15.0   25.8   31.0   69.4   86.4
16 TGLDX Tocqueville Gold     .   14.8   24.6   41.3  148.5  167.8
 8 GOLDX Gabelli Gold         .   14.7   23.3   41.9  145.7  178.8
 7 FKRCX Franklin Gold & PrM A.   14.7   23.1   35.8   66.7   81.2
 4 EKWBX Evergreen Prec Mtls B.   14.7   24.0   40.2  118.6  154.3
20 INIVX Van Eck Intl Inv GoldA   14.5   24.6   35.1  135.9  151.5
 3 INPMX AXP Precious Metals A.   14.4   24.8   32.7   87.3  100.4
 2 BGEIX Amer Cent Global Gold.   14.1   23.3   36.1  120.1  160.3
21 VGPMX Vanguard Prec Metals .   13.2   20.4   29.6   68.5   83.6
12 OMCGX Monterey OCM Gold    .   13.1   25.8   36.0  135.4  179.1
11 MIDSX Midas Fund           .   12.7   22.8   29.9   97.8   91.4
14 RYPMX Rydex Prec Metals    .   12.6   22.9   27.3   73.1   94.8
10 FGLDX INVESCO Gold & Pr Mtl.   11.5   19.9   28.6   93.3   98.1
 9 LEXMX ING Pilgrim Pr Mtls A.   11.3   18.7   30.8  112.9  132.6
 5 FSAGX Fidelity Select Gold .   11.0   17.9   23.0   87.8  109.0
 6 SGGDX First Eagle SGen Gold.   10.3   16.0   33.0  153.8  190.0
 1 ASA   ASA Ltd              .    9.7   21.3   49.0  160.6  180.4

By any measurement, August was a very good month for gold funds. With Scudder (SCGDX) leading the way as leader in all periods within one year, all gold funds are now showing a strong 12 month period. The rally continued right up to the last day as all funds set new 52 week highs during the last two days of the month. In the past this was a time to regroup, but every time the equities and funds show signs of regrouping, gold takes a two day break and then jumps a few more dollars in price.

The Position indicator gives the relative position of a fund between its 52 week high and low. Its high is represented by +100 and its low by -100. As of August 29, 2003.

fn          Fund                   pos     nav
15 SCGDX Scudder Gold & Pr Mt S  100.0   15.82
 8 GOLDX Gabelli Gold         .  100.0   14.72
17 USERX US Global Gold Shrs  .  100.0    6.34
19 USAGX USAA Gold            .  100.0   13.78
16 TGLDX Tocqueville Gold     .  100.0   29.72
18 UNWPX US Global World PrecM.  100.0   12.17
 4 EKWBX Evergreen Prec Mtls B.  100.0   25.66
 2 BGEIX Amer Cent Global Gold.  100.0   10.85
12 OMCGX Monterey OCM Gold    .  100.0   11.11
13 OPGSX Oppenheimer Gold A   .  100.0   16.72
 6 SGGDX First Eagle SGen Gold.  100.0   14.82
11 MIDSX Midas Fund           .  100.0    1.78
 3 INPMX AXP Precious Metals A.  100.0   10.02
10 FGLDX INVESCO Gold & Pr Mtl.  100.0    3.19
 5 FSAGX Fidelity Select Gold .  100.0   26.06
 7 FKRCX Franklin Gold & PrM A.  100.0   15.75
20 INIVX Van Eck Intl Inv GoldA  100.0    9.34
21 VGPMX Vanguard Prec Metals .  100.0   13.41
 1 ASA   ASA Ltd              .   99.3   43.39
 9 LEXMX ING Pilgrim Pr Mtls A.   98.4    6.28
14 RYPMX Rydex Prec Metals    .   97.8   35.99

This indicator demonstrates a fund's ability to retain previous advances without falling out of bed when gold has a bad month or two. Of course they all look good when nav's are climbing.

All funds but three reached a new high on the last day of the month as the surge continued.

The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of August 29) 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 .   697
21 VGPMX Vanguard Prec Metals .   525
 2 BGEIX Amer Cent Global Gold.   459
 1 ASA   ASA Ltd              .   415
 7 FKRCX Franklin Gold & PrM A.   335
16 TGLDX Tocqueville Gold     .   271
20 INIVX Van Eck Intl Inv GoldA   264
 6 SGGDX First Eagle SGen Gold.   236
 8 GOLDX Gabelli Gold         .   217
19 USAGX USAA Gold            .   196
15 SCGDX Scudder Gold & Pr Mt S   176
13 OPGSX Oppenheimer Gold A   .   147
18 UNWPX US Global World PrecM.   129
10 FGLDX INVESCO Gold & Pr Mtl.   123
14 RYPMX Rydex Prec Metals    .   110
 9 LEXMX ING Pilgrim Pr Mtls A.    93
 3 INPMX AXP Precious Metals A.    59
17 USERX US Global Gold Shrs  .    55
11 MIDSX Midas Fund           .    53
 4 EKWBX Evergreen Prec Mtls B.    42
12 OMCGX Monterey OCM Gold    .    42

These numbers have begun to increase substantially as the equities are moving, some due to an increase in investment funding sources outside the stock market. A small section of the public is beginning to notice that gold is well into a bull market and money placed in one of these funds is well positioned.

The total capitalization of all gold mining investment worldwide is less than $80 billion. Further new infusions of cash into this market will push the value of gold equities to higher highs, along with the funds.

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 SCGDX Scudder Gold & Pr Mt S   1.56
 8 GOLDX Gabelli Gold         .   1.33
17 USERX US Global Gold Shrs  .   1.22
19 USAGX USAA Gold            .   1.20
16 TGLDX Tocqueville Gold     .   1.19
18 UNWPX US Global World PrecM.   1.18
 4 EKWBX Evergreen Prec Mtls B.   1.17
 1 ASA   ASA Ltd              .   1.17
 2 BGEIX Amer Cent Global Gold.   1.15
12 OMCGX Monterey OCM Gold    .   1.13
 9 LEXMX ING Pilgrim Pr Mtls A.   1.07
13 OPGSX Oppenheimer Gold A   .   1.06
 6 SGGDX First Eagle SGen Gold.   1.02
11 MIDSX Midas Fund           .   1.00
 3 INPMX AXP Precious Metals A.   1.00
14 RYPMX Rydex Prec Metals    .   0.97
10 FGLDX INVESCO Gold & Pr Mtl.   0.97
 5 FSAGX Fidelity Select Gold .   0.96
 7 FKRCX Franklin Gold & PrM A.   0.93
20 INIVX Van Eck Intl Inv GoldA   0.77
21 VGPMX Vanguard Prec Metals .   0.77

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.

Scudder Gold (SCGDX) has been the gold fund leader for several months, and has opened a substantial lead over the others. Last year's leader, First Eagle Gold (SGGDX) has fallen back into the pack, so selecting the current top fund is not always the best way to pick one for the future. As gold goes, so goes most gold funds, but there are other factors to consider.

For timing purposes, there has signs of an expansion of new money coming into the gold mining business, and this usually occurs at the top of a market.

The current growth in the economy has expanded on an international scale, and similar situations of high debt, soaring real estate values, and inflationary tendencies are evident in many areas of the world, not just the U.S. This tells me that currencies are playing the same game of expansion, which means inflation is down the road in terms of higher prices for basic items, such as oil, gasoline, copper, land, and gold. The stock market rally, while strong, will be limited by the federal budget deficit and the trade deficit. On the other hand, demand for gold worldwide is increasing, not due to a weak dollar.

In the U.S., we are now seeing the results of the tax cut in smaller withholding which leaves more cash in consumers' pockets. This will help the economy, but in the long run, new jobs must be created instead of sending them overseas.

As a result of the ongoing boom in China, there is a new investment concept betting big time on the yuan with hopes of an appreciation against the dollar when that happens. This is a financial way of taking advantage of a maladjustment in exchange rates, and an indication that something is not in equilibrium. Certainly the Chinese government can see what is happening. The only long term option is to re-evaluate the yuan.

I repeat what I said last month:

"If the Chinese permit an appreciation of the yuan, the price of gold in yuan would go down, dropping domestic prices and creating a recession in their own country. They won't do it unless they can also buy enough gold to keep the value up in yuan. They could do this by buying gold for reserves with their excessive amount of U.S. treasuries. This would be inflationary in the U.S., push U.S. interest rates higher and would have to be done slowly as not to really irritate their number one trading partner, US. I would expect gold to move up in dollars the approximate percentage amount of a yuan re-evaluation.

While they say they are not going to do it, China will not sit there and take US paper debt forever. Other countries such as Mexico who see China taking their jobs as a result of a weak dollar and yuan connection will complain louder and China will be diplomatically forced to respond."

This newsletter attempts to provide information so that you can make a reasonable decision concerning gold funds as an investment. The monthly, quarterly, and yearly percentage changes may give you an indication of the efficiency of the portfolio managers, but it may be because they got lucky. In any case, the beta indicator tells how much the fund moves compared to others and conservative investors should stick with a relatively low beta. Always request a prospectus from a fund in which you have interest.

By analyzing international situations and events, I hope to give an indication of what happened, and how it affected gold prices. Gold funds and equities are driven long term by the price of gold, so these events and changes should be important to potential gold investors. I don't have a crystal ball for the future, so my comments are judgments about what could happen based on past experience and history.