The dollar rallied to close above 89 and the euro moved from 1.2058 to 1.2002. The long bond yield settled at 4.98%, down from 5.20% as treasuries rallied. The average 30 year mortgage rate descended to 5.80% and the housing market stayed at a fever pitch even as it showed some signs of moderating.

The Dow climbed back to 10195, the first time at that height in six weeks. The price of oil surged from $43 to over $49 before ending the month back down near $44. Production and refinery capacity remain near maximum and if demand continues to increase worldwide, higher prices are inevitable. To go back under $30 would take a miracle, or one billion flat tires.

The war in Iraq continues unabated, but I believe progress is being made in the middle of the turmoil, just like after World War II in Europe, and a democracy will eventually be established. Economically, the U.S. will still have a huge bill to pay and it will add to the twin deficits burdening the dollar. This burden will exist for many years.

With the latest trade deficit in June of over $55 billion, it can be said that trade policies are not doing the dollar any favor. In fact, this deficit, being paid for by Chinese and Japanese central bankers buying U.S. Treasuries, will eventually cause great pain to the dollar and to unsuspecting U.S. consumers

I was looking for something in the Republican and Democratic Conventions which might influence the dollar and gold indirectly, but was unable to find anything other than the obvious: both want to borrow and spend money like it doesn't have to be repaid, and therefore I see deficits far into the future regardless of what their other policies are.

Next week is the Gold and Precious Metals Investment Conference in Las Vegas, which I will be observing and hope to come back with words of wisdom from the many gurus who will be there. If you will be there, drop me an email and maybe we can find a dice table to win back expenses.

fn       Fund                     1 mo   3 mo  12 mo   2 yr   3 yr
 1 ASA   ASA Ltd              .   11.5    4.1   -8.2   36.9  139.4
12 OCMGX Monterey OCM Gold    .    8.3    2.4    2.9   40.8  143.7
 6 SGGDX First Eagle Gold     .    8.0    5.1    8.6   45.3  180.5
14 RYPMX Rydex Prec Metals    .    7.8    1.9    3.4   31.7   80.3
 8 GOLDX Gabelli Gold         .    7.5    1.9    4.2   47.9  158.5
20 INIVX Van Eck Intl Inv GoldA    7.5    0.7    4.5   41.1  146.5
16 TGLDX Tocqueville Gold     .    7.5    0.4    7.9   52.5  169.2
 2 BGEIX Amer Cent Global Gold.    7.4    1.2    3.0   41.1  128.7
 5 FSAGX Fidelity Select Gold .    7.1    1.3   -3.3   23.1   91.4
15 SGDAX Scudder Gold & Pr M A.    6.9    0.8   16.1   86.4  178.1
10 FGLDX INVESCO Gold & Pr Mtl.    6.8    3.9   12.4   44.6  117.3
13 OPGSX Oppenheimer Gold A   .    6.3    2.2   11.6   47.8  100.2
 7 FKRCX Franklin Gold & PrM A.    6.3    2.5    8.1   48.1   86.6
19 USAGX USAA Gold            .    6.2   -0.6    9.9   61.0  166.2
 4 EKWBX Evergreen Prec Mtls B.    5.8   -0.1   13.7   60.0  152.1
11 MIDSX Midas Fund           .    5.7    2.2    4.5   43.3  118.2
17 USERX US Global Gold Shrs  .    5.5   -5.3   10.0   54.6  159.2
 3 INPMX AXP Precious Metals A.    5.1   -3.2    5.0   45.0  104.6
 9 LEXMX ING Precious Metals  .    4.8   -2.5    0.5   31.5  115.3
18 UNWPX US Global World PrecM.    4.3   -4.2   24.0   77.1  199.5
21 VGPMX Vanguard Prec Metals .    3.7    4.3   15.6   55.1  110.0

ASA Limited jumped to the front this month, apparently led by South African stocks which compose 77% of its portfolio. In the past, that has been a reasonable bullish indication of the worldwide gold market.

All funds had a good month, but they are just now correcting for the past three months of mediocrity. Most of last years gains were made from September to December, so unless these funds pick up, we will soon see a decrease in 52 week gains, and possible negative numbers.

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 August 31, 2004.

fn        Fund                    pos     nav
 4 EKWBX Evergreen Prec Mtls B.   39.3   28.59
21 VGPMX Vanguard Prec Metals .   35.5   14.67
 6 SGGDX First Eagle Gold     .   35.3   15.59
10 FGLDX INVESCO Gold & Pr Mtl.   28.5    3.46
18 UNWPX US Global World PrecM.   20.4   13.58
 7 FKRCX Franklin Gold & PrM A.   19.5   16.94
16 TGLDX Tocqueville Gold     .   17.9   31.51
15 SGDAX Scudder Gold & Pr M A.   15.9   17.33
13 OPGSX Oppenheimer Gold A   .   12.8   17.65
11 MIDSX Midas Fund           .    6.8    1.86
19 USAGX USAA Gold            .    6.4   14.43
20 INIVX Van Eck Intl Inv GoldA   -1.6    9.76
14 RYPMX Rydex Prec Metals    .   -2.7   37.22
 2 BGEIX Amer Cent Global Gold.   -3.1   11.04
17 USERX US Global Gold Shrs  .   -7.7    6.95
 3 INPMX AXP Precious Metals A.   -8.1    9.84
 8 GOLDX Gabelli Gold         .   -8.6   15.20
 1 ASA   ASA Ltd              .  -11.5   39.20
12 OCMGX Monterey OCM Gold    .  -14.2   11.25
 9 LEXMX ING Precious Metals  .  -21.1    6.31
 5 FSAGX Fidelity Select Gold .  -23.5   24.46

This indicator shows that many funds have given up most of their annual gains, and half are below their 52 week averages. Evergreen (EKWBX), Vanguard(VGPMX), and First Eagle(SGGDX) have been the best at retaining their gains over the past twelve months, an indication of prudent stock selection in my book. Some funds have not been so fortunate.

The following list shows the approximate size of funds as measured in total assets under management in $millions. (As of the end of August) 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 .   664
 2 BGEIX Amer Cent Global Gold.   633
21 VGPMX Vanguard Prec Metals .   552
16 TGLDX Tocqueville Gold     .   486
 6 SGGDX First Eagle Gold     .   425
 7 FKRCX Franklin Gold & PrM A.   408
 1 ASA   ASA Ltd              .   375
19 USAGX USAA Gold            .   289
18 UNWPX US Global World PrecM.   252
20 INIVX Van Eck Intl Inv GoldA   243
13 OPGSX Oppenheimer Gold A   .   210
 8 GOLDX Gabelli Gold         .   195
14 RYPMX Rydex Prec Metals    .   170
15 SGDAX Scudder Gold & Pr M A.   117
10 FGLDX INVESCO Gold & Pr Mtl.   108
 9 LEXMX ING Precious Metals  .    83
12 OCMGX Monterey OCM Gold    .    70
17 USERX US Global Gold Shrs  .    63
 3 INPMX AXP Precious Metals A.    62
11 MIDSX Midas Fund           .    52
 4 EKWBX Evergreen Prec Mtls B.    39

While these numbers had increased over the past year, a total of several hundreds of millions of dollars in assets were lost in April, partially recovered in May, and some more lost in June and July. It was pointed out to me that there was in fact a decline in investment assets in the gold funds as many investors retreated. A good rally should bring them back in.

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
18 UNWPX US Global World PrecM.   1.51
15 SGDAX Scudder Gold & Pr Mts.   1.47
 4 EKWBX Evergreen Prec Mtls B.   1.39
17 USERX US Global Gold Shrs  .   1.29
19 USAGX USAA Gold            .   1.11
13 OPGSX Oppenheimer Gold A   .   1.11
 3 INPMX AXP Precious Metals A.   1.07
20 INIVX Van Eck Intl Inv GoldA   0.95
12 OCMGX Monterey OCM Gold    .   0.93
11 MIDSX Midas Fund           .   0.90
16 TGLDX Tocqueville Gold     .   0.90
 2 BGEIX Amer Cent Global Gold.   0.86
14 RYPMX Rydex Prec Metals    .   0.85
 7 FKRCX Franklin Gold & PrM A.   0.85
21 VGPMX Vanguard Prec Metals .   0.84
10 FGLDX INVESCO Gold & Pr Mtl.   0.82
 8 GOLDX Gabelli Gold         .   0.82
 9 LEXMX ING Precious Metals  .   0.82
 5 FSAGX Fidelity Select Gold .   0.75
 6 SGGDX First Eagle Gold     .   0.63
 1 ASA   ASA Ltd              .   0.62

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 didn't change from last month.

ASA Limited (NYSE-ASA) regained the top spot this month due to an apparent increase in South African assets. While not an official mutual fund, it is close enough for our consideration. The market price quoted is slightly less than the actual net asset value of the portfolio. Monterey (OCMGX), First Eagle (SGGDX), and Rydex (RYPMX) were close behind.

The political conventions were reasonably peaceful this year other than the expected insults, but both gave no intention of giving much thought to balancing the budget, or as a minimum, reducing federal spending. Taxes can be raised only so far before they actually cause a decrease in revenues, so there is a limit. There is apparently no limit to spending.

In addition, the large leap in the trade deficit to over $55 billion in June is a bad sign for the dollar, and may soon convince our international financiers that holding dollars in their reserves is a losing idea. On the other hand, a few more years of this and they can buy anything they want in the U.S., including politicians.

Since gold is essentially an inverse indication of the value of the dollar, I see higher gold prices as inevitable, with higher fund asset values.

At the end of August, gold was only slightly under its yearly high, but XAU and funds were still down 10-20%. It looks like many investors bailed out this spring and summer on gold stocks and funds. This divergence has produced a good buying opportunity once we reach bottom with gold. Predicting that is beyond my skill level.