The war in Lebanon came to a much quicker end than I had thought possible, but it is still dependent on the inability of Hezbollah to launch a few missiles under the cover of the U.N. World attention has swung back to Iraq, which is on the edge of a civil war, but that's not much new. Neither conflict seems to have any effect on the price of gold.

Without serious gold news, most predictions fell upon the general economy. August ended with good news about unemployment and indications that the economy is still on good footing, but interest rates slid all month as the long bond yield descended to a low at 4.88%. It's well below the Federal Reserve short term rate of 5.25%, and that usually indicates a coming recession. With housing taking a dive in most areas, down 21% in July for new home sales, we can expect much less consumer cash available to put into the economic mix. That is not bullish for metals nor the Dow over the next six months minimum.

The latest employment figures indicate a growing economy, but critics use the same numbers to prove we are slowing down. 4.7% unemployment is historically low, but how valid are the numbers?

The lower interest rates across the board have also decreased mortgage rates slightly, so it may give some last life to the housing market. With adjustable mortgage rate impacting recent buyers, it will take a much deeper drop in interest rates to save housing, very unlikely. Much further decreases in rates would be due to a major slowdown in the economy and most markets, including metals.

Oil prices are at a three month low and natural gas is under $6, which may be a sign of commodities taking a break, and that would help stall thoughts of inflation. The Goldman Sachs Commodities Index fell enough to be up only 7% for the year, less than the Dow.

Silver has run up ahead of other metals, just short of $13, as if it knows something we don't. It may be leading the way, or it may just be overextending.

On the last day of the month, Goldcorp (GG) made an offer to buyout Glamis Gold (GLG) at a premium, total value about $8 billion, which caused GG to plunge and GLG to soar. The action was big enough to affect many fund portfolio values.

fn            Fund                1 mo   3 mo  12 mo   2 yr   3 yr
11 MIDSX Midas Fund           .    6.2    3.6  103.8  130.1  140.4
 2 FGLDX AIM Gold & Pr Mtls Inv    6.1    4.1   60.5   76.8   98.7
21 INIVX Van Eck Intl Inv GoldA    6.0    6.2   76.7   92.3  100.4
20 USAGX USAA Precious Metals .    5.1    6.4   82.0  100.7  119.0
13 OPGSX Oppenheimer Gold A   .    4.9    3.8   73.0   99.0  112.0
15 RYPMX Rydex Prec Metals    .    4.8    5.1   56.9   49.6   53.7
 9 GOLDX Gabelli Gold         .    4.6    3.9   71.0   79.6   85.5
10 LEXMX ING Precious Metals A.    4.5    2.3   68.1   83.1   82.7
12 OCMGX OCM Gold             .    4.4    1.3   75.1   76.6   81.7
 4 INPMX Riversource Prec MtlsA    4.4    6.6   72.4   79.1   88.0
 5 EKWBX Evergreen Prec Mtls B.    4.4    4.7   77.2   95.0  119.4
 3 BGEIX Amer Cent Global Gold.    3.8    1.0   67.3   73.6   80.2
 6 FSAGX Fidelity Select Gold .    3.8    1.7   66.4   84.8   75.9
 8 FKRCX Franklin Gold & PrMt A    3.8    4.5   70.3   89.2   99.2
16 SGDAX Scudder Gold & Pr Mt A    3.6    3.6   61.9   62.9   86.9
14 PMPIX Profund Prec Mtls Ultr    2.7   -0.7   66.2   64.9   64.3
 7 SGGDX First Eagle Gold A   .    2.7    2.2   60.6   61.9   73.8
18 USERX US Global Gold Shares.    2.2    4.8   97.8  136.3  159.9
19 UNWPX US Global World Pr Mns    2.0    3.8   90.8  138.9  196.3
17 TGLDX Tocqueville Gold     .    1.9    1.2   63.2   78.1   91.3
22 VGPMX Vanguard Prec Metals .    1.2   -0.8   50.3  116.9  139.0
 1 ASA   ASA Ltd              .    0.8   -0.4   62.6   63.5   44.2

Midas Fund (MIDSX) took over the top spot for August and is the only fund which has doubled in the past 12 months. All funds gained. Over the past month, gold equities have outpaced bullion, so this trend will be at risk unless bullion can break out of a rut below 625. The offer by GG for GLG stock undoubtedly affected funds holding either of the two. GLG soared as GG fell back.

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 August 31, 2006.

				      nav
fn          Fund                  pos  07/31/06  08/31/06
18 USERX US Global Gold Shares.   69.2   15.79    16.14
21 INIVX Van Eck Intl Inv GoldA   68.2   16.10    17.07
19 UNWPX US Global World Pr Mns   67.5   29.42    30.02
20 USAGX USAA Precious Metals .   65.1   27.10    28.47
 4 INPMX Riversource Prec MtlsA   63.4   15.03    15.69
 5 EKWBX Evergreen Prec Mtls B.   62.6   53.33    55.67
11 MIDSX Midas Fund           .   62.1    4.03     4.28
 2 FGLDX AIM Gold & Pr Mtls Inv   61.8    5.70     6.05
 6 FSAGX Fidelity Select Gold .   59.1   34.46    35.77
13 OPGSX Oppenheimer Gold A   .   58.7   29.67    31.12
12 OCMGX OCM Gold             .   58.1   18.38    19.19
 7 SGGDX First Eagle Gold A   .   57.8   24.00    24.65
22 VGPMX Vanguard Prec Metals .   55.6   28.69    29.02
15 RYPMX Rydex Prec Metals    .   55.0   53.13    55.68
10 LEXMX ING Precious Metals A.   53.9   10.69    11.17
16 SGDAX Scudder Gold & Pr Mt A   53.9   23.19    24.02
 9 GOLDX Gabelli Gold         .   53.7   25.56    26.73
 8 FKRCX Franklin Gold & PrMt A   53.6   30.67    31.83
 3 BGEIX Amer Cent Global Gold.   48.9   18.46    19.17
17 TGLDX Tocqueville Gold     .   47.8   50.31    51.28
 1 ASA   ASA Ltd              .   31.2   61.71    62.23
14 PMPIX Profund Prec Mtls Ultr   26.7   45.10    46.33

August was a positive month and all are still well above their yearly average. A base for funds is forming, but unless gold bullion gets some energy to the upside, fund advances will be limited.

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
22 VGPMX Vanguard Prec Metals .   3618
 6 FSAGX Fidelity Select Gold .   1311
 3 BGEIX Amer Cent Global Gold.   1006
 7 SGGDX First Eagle Gold A   .    883
17 TGLDX Tocqueville Gold     .    853
 8 FKRCX Franklin Gold & PrMt A    837
19 UNWPX US Global World Pr Mns    736
 1 ASA   ASA Ltd              .    601
20 USAGX USAA Precious Metals .    582
13 OPGSX Oppenheimer Gold A   .    547
 9 GOLDX Gabelli Gold         .    433
21 INIVX Van Eck Intl Inv GoldA    365
15 RYPMX Rydex Prec Metals    .    211
16 SGDAX Scudder Gold & Pr Mt A    194
18 USERX US Global Gold Shares.    168
 2 FGLDX AIM Gold & Pr Mtls Inv    158
10 LEXMX ING Precious Metals A.    132
11 MIDSX Midas Fund           .    121
12 OCMGX OCM Gold             .    113
14 PMPIX Profund Prec Mtls Ultr    112
 4 INPMX Riversource Prec MtlsA     92
 5 EKWBX Evergreen Prec Mtls B.     74

Vanguard remains the largest gold fund by far and has been closed to new investors for months, but still grows. All others are increasing in investment funds even as much goes 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.

XAU moved from 141.85 to 148 before sliding back to 139. It then rallied to 148 again and then fell back to 143. It is now at 146.72 in another rally. Gold funds are matching this cycling as gold moves between 610 and 650. Silver has decided to go its own way, surging to 12.90, and has taken most silver stocks with it. This is a positive sign for other metals, including gold, but silver rarely goes very far all by itself.

With the long bond yield sliding to 4.88% from 5.07%, the inverted yield curve indicates that we are in for a slowdown in the economy, which is not good for gold. Of course, if rates stay low, the Federal Reserve won't raise rates and the dollar will slip, and that's good for gold.

While the price of oil hovers around $70, there are a few analysts predicting that it will fall with the increasing inventories, perhaps to as low as $40. Any decrease in oil would probably affect other commodity prices and would probably drop gold below 600.

The dollar is stalled in a small trading range around 85, and could break either way. Gold would benefit from a weaker dollar, but a dollar rally could push gold under 600.

With the offer by Goldcorp for Glamis, this year has seen a record number of mines buying other mines, an overall bullish sentiment. There is only so much territory out there with gold on it, and buying known mines appears to be the most economical way to go. That implies that prices of existing and potential mines are low.