Commodity speculators feel that the long term prognostication is for a much weaker dollar and a resulting higher gold price (and silver price). Since the U.S. continues to suck up the world's money and convert it into debt, the long term fundamentals seem to be in favor of the speculators. However, the short term technicals suggest that gold may settle back to 379 and perhaps lower before launching past 400. In the long run, even Merrill Lynch predicts gold in 2004 will reach 425.

In the U.S., economists are concentrating on the lack of new jobs in this recovery, even as national income increases and the housing market, reinforced by mortgage rates once again below 6%, keeps booming. The long bond yield fell from 5.22% to 4.96%. The second quarter GDP numbers were adjusted upward to 3.3%, giving an overly optimistic view to an economy trying to make a recovery. However, little other evidence confirms much of a recovery. The Dow closed at 9275.

A meeting of G7 finance ministers indicated that the dollar should be free to fall against other currencies and that the Washington Agreement of 1999 which unofficially limited the amount of gold bullion that central banks could sell per year would probably be extended. Both are long term bullish for gold and pushed the dollar down. Other than rhetoric, the Bush administration doesn't seem to be bothered as the dollar goes down little by little. Japan, on the other hand, continues to buy dollars to keep it from falling too much against the yen.

In the mutual fund business, the New York Attorney General was actively investigating alleged cheating by a large hedge fund, Canary Investment Management, where major investment houses and funds assisted in larceny at the expense of normal fund investors. Allegedly, with the help of Bank of America, Janus Capital Group, Strong Funds, Nations Funds, and Capital One, Canary Investment was able to buy or sell after the market closed. The average investor took the losses without ever knowing it. New York Attorney General Eliot Spitzer called this betting on a horse that has already won. For more info, visit: http://moneycentral.msn.com/content/P59933.asp

fn       Fund                     1 mo   3 mo  12 mo   2 yr   3 yr
15 SGDAX Scudder Gold & Pr Mts.    8.7   44.4   70.1  139.9  200.2
18 UNWPX US Global World PrecM.    7.7   34.5   52.4  145.5  145.1
21 VGPMX Vanguard Prec Metals .    5.0   23.2   39.3   69.7  107.7
19 USAGX USAA Gold            .    4.8   29.7   45.9  127.4  199.0
17 USERX US Global Gold Shrs  .    4.4   27.8   42.7  136.4  152.7
 3 INPMX AXP Precious Metals A.    4.1   24.9   38.7   93.5  129.2
13 OPGSX Oppenheimer Gold A   .    4.0   26.1   36.1   77.4  107.3
11 MIDSX Midas Fund           .    3.9   23.3   26.7  101.1  112.6
 4 EKWBX Evergreen Prec Mtls B.    3.6   24.5   45.5  117.2  176.7
16 TGLDX Tocqueville Gold     .    3.5   24.9   44.8  148.5  191.7
 8 GOLDX Gabelli Gold         .    3.1   23.8   43.9  139.8  201.2
20 INIVX Van Eck Intl Inv GoldA    2.7   24.7   36.8  127.7  175.1
 7 FKRCX Franklin Gold & PrM A.    2.3   22.1   38.6   73.8   99.6
12 OMCGX Monterey OCM Gold    .    2.3   21.5   37.4  128.1  200.5
 6 SGGDX First Eagle Gold     .    1.7   17.1   33.1  140.0  195.5
10 FGLDX INVESCO Gold & Pr Mtl.    1.6   18.2   30.1   88.4  118.9
 5 FSAGX Fidelity Select Gold .    1.2   17.7   21.6   87.0  124.7
 2 BGEIX Amer Cent Global Gold.    1.0   19.7   34.0  108.0  176.7
 9 LEXMX ING Precious Metals  .    0.0   16.7   29.2  103.2  146.3
14 RYPMX Rydex Prec Metals    .   -1.8   15.7   27.2   64.2  102.5
 1 ASA   ASA Ltd              .   -2.2   12.8   34.7  142.2  177.3

Scudder continues to lead the pack for another month. Since Scudder Gold & Precious Metals 'S' (SCGDX) is closed to new investors, I will be following Scudder Gold & Precious Metals 'A'(SGDAX), a newer and smaller version. Portfolio management and quote histories are essentially the same, so there is little difference except for the front load on the 'A' fund(SGDAX).

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 September 30, 2003.

fn        Fund                    pos     nav
15 SGDAX Scudder Gold & Pr Mts.   83.1   17.20
21 VGPMX Vanguard Prec Metals .   81.0   14.08
18 UNWPX US Global World PrecM.   80.5   13.11
16 TGLDX Tocqueville Gold     .   80.4   30.75
19 USAGX USAA Gold            .   80.3   14.44
 4 EKWBX Evergreen Prec Mtls B.   77.8   26.59
12 OMCGX Monterey OCM Gold    .   77.3   11.36
 8 GOLDX Gabelli Gold         .   76.9   15.18
 1 ASA   ASA Ltd              .   76.7   42.45
 6 SGGDX First Eagle Gold     .   76.4   15.07
 3 INPMX AXP Precious Metals A.   76.2   10.43
 7 FKRCX Franklin Gold & PrM A.   76.1   16.11
10 FGLDX INVESCO Gold & Pr Mtl.   75.7    3.24
17 USERX US Global Gold Shrs  .   73.2    6.62
11 MIDSX Midas Fund           .   73.0    1.85
13 OPGSX Oppenheimer Gold A   .   71.7   17.39
 2 BGEIX Amer Cent Global Gold.   70.3   10.96
 5 FSAGX Fidelity Select Gold .   69.4   26.38
20 INIVX Van Eck Intl Inv GoldA   68.4    9.59
 9 LEXMX ING Precious Metals  .   63.9    6.28
14 RYPMX Rydex Prec Metals    .   60.1   35.36

This indicator demonstrates a fund's ability to retain previous advances without falling out of bed when gold has a bad month or two. Most funds set a new high during the jump in gold to the 394 peak, but gave up some gains during the last few days of the month.

The following list shows the approximate size of funds as measured in total assets under management in $millions. (As of September 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 .   706
21 VGPMX Vanguard Prec Metals .   551
 2 BGEIX Amer Cent Global Gold.   504
 1 ASA   ASA Ltd              .   406
 7 FKRCX Franklin Gold & PrM A.   342
20 INIVX Van Eck Intl Inv GoldA   271
 6 SGGDX First Eagle Gold     .   240
 8 GOLDX Gabelli Gold         .   223
19 USAGX USAA Gold            .   210
16 TGLDX Tocqueville Gold     .   205
13 OPGSX Oppenheimer Gold A   .   153
18 UNWPX US Global World PrecM.   139
10 FGLDX INVESCO Gold & Pr Mtl.   125
 9 LEXMX ING Precious Metals  .   103
14 RYPMX Rydex Prec Metals    .    99
 3 INPMX AXP Precious Metals A.    61
11 MIDSX Midas Fund           .    59
17 USERX US Global Gold Shrs  .    57
 4 EKWBX Evergreen Prec Mtls B.    43
12 OMCGX Monterey OCM Gold    .    43
15 SGDAX Scudder Gold & Pr Mts.    28

Some analysts have reported that there is an increased flow of money into these funds from an interested public after the publicity of gold chasing a new seven year high. I don't have anyway to confirm this but would believe it.

The total capitalization of all gold mining investment worldwide is still less than $85 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 SGDAX Scudder Gold & Pr Mts.    1.60
18 UNWPX US Global World PrecM.    1.44
17 USERX US Global Gold Shrs  .    1.28
 1 ASA   ASA Ltd              .    1.25
 8 GOLDX Gabelli Gold         .    1.22
 4 EKWBX Evergreen Prec Mtls B.    1.18
 3 INPMX AXP Precious Metals A.    1.09
19 USAGX USAA Gold            .    1.08
12 OMCGX Monterey OCM Gold    .    1.05
 2 BGEIX Amer Cent Global Gold.    1.05
13 OPGSX Oppenheimer Gold A   .    1.02
16 TGLDX Tocqueville Gold     .    1.00
11 MIDSX Midas Fund           .    0.97
 7 FKRCX Franklin Gold & PrM A.    0.92
 6 SGGDX First Eagle Gold     .    0.92
 9 LEXMX ING Precious Metals  .    0.90
14 RYPMX Rydex Prec Metals    .    0.90
20 INIVX Van Eck Intl Inv GoldA    0.90
10 FGLDX INVESCO Gold & Pr Mtl.    0.82
21 VGPMX Vanguard Prec Metals .    0.79
 5 FSAGX Fidelity Select Gold .    0.73

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 (SGDAX) continued to lead the group over the past year and is closing in on the two-year leaders, Tocqueville Gold(TGLDX), U.S. Global World Precious Minerals (UNWPX), ASA Limited (ASA), First Eagle Gold(SGGDX), and Gabelli Gold (GOLDX).

September extended the run by gold into its second month, but following the two day plunge last week, we may have seen the peak for the short term. The high level of short selling posted on the COT from the commercial producers almost always produces a peak in a commodity price and must be reduced over time for a new rally to begin. On the other hand, basing conclusions on the results of the last twenty years only considers a bearish environment and may not fit the new bullish direction. Therefore, I'm not sure it means anything.

Although most funds gained for the month, there were many gold equities which had losses and did not participate in the record setting. That indicates that the recent rally might have been mostly on the advance in gold prices, resulting in optimistic predictions over 400, and not on equity fundamentals. The approved solution from many analysts over the past three weeks was that equities were over extended, but there seems to be a lot of room for them to get back on the bullish bandwagon. There are valid arguments for gold equity values to move both directions.

An essential ingredient of investing is recognition of the supply and demand equation, and gold mining production has not matched demand for years. It will take many more years for current exploration to turn into production. Therefore, any increase in demand will produce a higher international price.

Much of the expansion of large mines has come from acquisition of smaller mines, which doesn't add any new production. When the physical market gets tight enough, the stock values of small exploration companies will jump like dot-coms did in the late 90's. Demand will overwhelm production and prices will soar. Some of these stocks will be, as Mark Twain said, "A hole in the ground with a liar next to it".

Since March 2003 with the offering of Gold Bullion from Australia, there has been increased interest in international funds specializing in gold bullion and open to most investors. The World Gold Council is sponsoring the Equity Gold Trust (GLD), which will come out in October and be available on international exchanges. These are not mutual funds and do not follow the rules of the SEC like mutual funds. A similar, but well established fund, the Central Fund of Canada, has been around for years, investing in and holding gold and silver bullion only. For further info, visit:

www.miips1.net/MGGold.nsf/

Making a case for gold

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