A recurring fear of inflation gave the price of gold a boost due to real oil and natural gas shortages caused by hurricanes Katrina and Rita. Supplies will definitely be restricted for a few months, maybe more, as many oil platforms in the Gulf of Mexico are not producing. Even with this, from a high over $70, the price of oil closed the month at $65.47.

While the CPI has been exhibiting very low numbers, we all know that the costs of essentials have increased in price, some abruptly, like gasoline and natural gas. The price of oil has soared from $30 to over $65 in only a few months and natural gas has doubled. Lead and nickel price increases are way ahead of gold and silver. While basic grain prices are still low, the prices of processed foods which we actually eat have taken off. The Goldman Sachs Commodities index reached an all-time high, and contrary evidence of a climbing dollar for the entire month did not change many minds nor deter gold investors. The dollar index closed at 89.44, up from 87.34. The euro closed at 1.1919.

The economy had mixed indicators. While existing home sales set new highs in July, the inventory of homes for sale set another high record. With the long bond yield climbing to 4.56%, mortgage rates began to rise, approaching 6%, and many interest-only, adjustable rate mortgages will soon haunt owners. Since the economy has been built lately on a booming real estate industry, this is not a good sign.

The U.S. trade deficit slid back slightly in July, but was still the third highest deficit in history, almost $2 Billion per day. The long bond yield climbed from 4.26% to 4.56% as all meaningful bond yields increased substantially. The Federal Reserve increased the short term rate to 3.75% in an effort to cut off inflationary pressures before they get up steam.

The Conference Board consumer confidence index dropped over 18 points, a substantial amount, indicating that the consumer may be tightening his spending and borrowing habits in the near future. Meanwhile, the Dow and NASDAQ rose slightly.

fn       Fund                     1 mo   3 mo  12 mo   2 yr   3 yr
14 PMPIX Profund Prec Mtls Ultr   26.9   32.3   13.5   25.7   74.5
 1 ASA   ASA Ltd              .   20.6   21.2    6.6    9.3   47.2
11 MIDSX Midas Fund           .   19.5   26.8   21.8   35.7   81.5
 6 FSAGX Fidelity Select Gold .   19.3   25.5   19.6   24.6   56.8
 9 GOLDX Gabelli Gold         .   18.8   23.9   13.7   25.0   79.9
 5 EKWBX Evergreen Prec Mtls B.   18.8   22.1   17.1   41.8  107.2
 8 FKRCX Franklin Gold & PrMt A   18.3   23.3   18.8   35.3   89.3
21 INIVX Van Eck Intl Inv GoldA   17.6   22.0   15.5   29.9   77.7
10 LEXMX ING Precious Metals A.   17.4   22.4   14.9   27.7   64.9
 3 BGEIX Amer Cent Global Gold.   17.0   19.4   10.7   24.8   68.3
15 RYPMX Rydex Prec Metals    .   16.7   18.8   -0.2   16.3   48.0
12 OCMGX OCM Gold             .   16.1   18.4    7.2   17.8   62.8
 7 SGGDX First Eagle Gold A   .   15.6   15.5    7.4   23.0   64.8
 4 INPMX AXP Precious Metals A.   15.5   20.8    9.1   21.0   74.7
17 TGLDX Tocqueville Gold     .   15.4   17.6   15.6   30.8   89.4
20 USAGX USAA Precious Metals .   15.2   21.1   17.8   32.2  102.6
16 SGDAX Scudder Gold & Pr Mt A   14.6   14.9    2.6   21.7  109.5
18 USERX US Global Gold Shares.   14.3   22.9   19.3   43.8  105.2
19 UNWPX US Global World Pr Mns   14.1   21.8   23.8   64.6  151.4
 2 FGLDX AIM Gold & Pr Mtls Inv   14.1   20.1   15.9   39.0   80.9
13 OPGSX Oppenheimer Gold A   .   13.2   17.1   12.7   33.2   83.2
22 VGPMX Vanguard Prec Metals .   12.5   27.5   42.0   70.3  145.6

September looked great except for a minor retreat on the last day, raising most gold funds to new highs. Profund Precious Metals (PMPIX) showed us another good week and month, up 26% and making up for its previous six months in short order. ASA Limited's (ASA) quiet advance and high ranking can be partially attributed to a strong dollar with a favorable rand to dollar exchange rate good for South African stocks.

Midas Fund (MIDSX), Franklin Gold (FKRCX), Fidelity (FSAGX), and Evergreen (EKWBX) have all joined in the hunt for best fund over the last 6 months. The two top funds, Vanguard (VGPMX) and US Global World Precious Minerals (UNWPX) are still out in front with comfortable leads.

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 September 30, 2005.

fn          Fund                    pos   9/30/05
11 MIDSX Midas Fund           .   100.0    2.51
19 UNWPX US Global World Pr Mns   100.0   18.88
22 VGPMX Vanguard Prec Metals .   100.0   22.47
17 TGLDX Tocqueville Gold     .    99.1   38.13
 8 FKRCX Franklin Gold & PrMt A    99.1   22.25
 6 FSAGX Fidelity Select Gold .    98.8   30.41
20 USAGX USAA Precious Metals .    98.6   18.15
10 LEXMX ING Precious Metals A.    98.5    7.82
 9 GOLDX Gabelli Gold         .    96.1   18.74
18 USERX US Global Gold Shares.    95.9    9.43
 5 EKWBX Evergreen Prec Mtls B.    95.8   37.36
 2 FGLDX AIM Gold & Pr Mtls Inv    95.5    4.30
13 OPGSX Oppenheimer Gold A   .    95.0   21.40
 1 ASA   ASA Ltd              .    94.7   46.79
 3 BGEIX Amer Cent Global Gold.    93.3   13.41
 7 SGGDX First Eagle Gold A   .    92.8   18.17
14 PMPIX Profund Prec Mtls Ultr    90.4   35.37
12 OCMGX OCM Gold             .    84.4   12.77
21 INIVX Van Eck Intl Inv GoldA    74.9   11.36
15 RYPMX Rydex Prec Metals    .    74.9   41.40
 4 INPMX AXP Precious Metals A.    55.4   10.51
16 SGDAX Scudder Gold & Pr Mt A    40.8   18.23

Only a few funds couldn't reach a new 52-week high this month, with Midas (MIDSX), U.S. Global World Gold (UNWPX) and Vanguard (VGPMX) setting a high on the last day of the month.

The following list shows the approximate size of funds as measured in total assets under management. (In $millions as of the end of September) 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 .   1640
 6 FSAGX Fidelity Select Gold .    784
 3 BGEIX Amer Cent Global Gold.    725
 7 SGGDX First Eagle Gold A   .    584
17 TGLDX Tocqueville Gold     .    580
 8 FKRCX Franklin Gold & PrMt A    553
 1 ASA   ASA Ltd              .    448
20 USAGX USAA Precious Metals .    368
19 UNWPX US Global World Pr Mns    320
 9 GOLDX Gabelli Gold         .    299
21 INIVX Van Eck Intl Inv GoldA    283
13 OPGSX Oppenheimer Gold A   .    276
15 RYPMX Rydex Prec Metals    .    149
16 SGDAX Scudder Gold & Pr Mt A    137
 2 FGLDX AIM Gold & Pr Mtls Inv    118
10 LEXMX ING Precious Metals A.     97
12 OCMGX OCM Gold             .     81
14 PMPIX Profund Prec Mtls Ultr     80
18 USERX US Global Gold Shares.     77
 4 INPMX AXP Precious Metals A.     72
11 MIDSX Midas Fund           .     63
 5 EKWBX Evergreen Prec Mtls B.     48

All funds increased substantially in September as asset values jumped. Since gold is starting to get more good press, we should expect more fund purchases with available cash by investors who might not have ever considered precious metals in the past. As in the last ten months, Vanguard Precious Metals(VGPMX) remains the monster fund on the block.

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
14 PMPIX Profund Prec Mtls Ultr   1.53
22 VGPMX Vanguard Prec Metals .   1.38
16 SGDAX Scudder Gold & Pr Mt A   1.26
 4 INPMX AXP Precious Metals A.   1.21
19 UNWPX US Global World Pr Mns   1.19
18 USERX US Global Gold Shares.   1.18
21 INIVX Van Eck Intl Inv GoldA   1.15
11 MIDSX Midas Fund           .   1.11
15 RYPMX Rydex Prec Metals    .   1.09
 6 FSAGX Fidelity Select Gold .   1.08
10 LEXMX ING Precious Metals A.   1.04
 5 EKWBX Evergreen Prec Mtls B.   1.03
 9 GOLDX Gabelli Gold         .   1.02
 3 BGEIX Amer Cent Global Gold.   1.00
 8 FKRCX Franklin Gold & PrMt A   1.00
20 USAGX USAA Precious Metals .   0.99
 2 FGLDX AIM Gold & Pr Mtls Inv   0.95
 1 ASA   ASA Ltd              .   0.95
12 OCMGX OCM Gold             .   0.94
13 OPGSX Oppenheimer Gold A   .   0.91
17 TGLDX Tocqueville Gold     .   0.83
 7 SGGDX First Eagle Gold A   .   0.74

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. Perhaps 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.

Profund Precious Metals (PMPIX) held the top spot again as all gold funds surged. We are, however, at a technical high on almost every chart, and essentially overbought. It is time for a consolidation for gold, gold stocks, and gold funds. Some analysts feel that the consolidation will return gold to 445-450, and some think much lower, near 420. The latter would drop funds 20-30%. Other analysts feel that a major historical trend has been initiated, and gold will not slide far before it regroups and relaunches above 500. If so, funds will be up another 20-25% by the end of 2005.

Gold made its big move in September as President Bush declared that we (taxpayers) would help the Katrina victims as much as needed, and Congress passed bills allocating $50-100 billion from the federal treasury. This knee jerk, emotional and political offer by politicians to pay for just about everything confirmed a lack of financial discipline in Washington and proved to many investors that the dollar will eventually plunge as politicians and their economic advisors watch in a state of misunderstanding and unbelief. As gold reacted, many more reasonable politicians tried to get the discussion back to reasonable limits. Many investors saw the light and began to cover their assets with gold and natural resources. This trend will reverse only when Congress and the President return to their senses, which may never happen.

Gold stocks, as would be expected, have increased their level of volatility, and almost all are in upward trajectories. Some of this can be attributed to hedge funds adding speculative funds to the market to get on the bandwagon and ride the trend. However, like other major trends, they tend to blow out, and speculators can exit faster than they enter, bringing a short term reckoning to gold and gold stocks. This is what the above mentioned analysts fear, having seen it in past historical cases.

For the record, the trade deficit remains high, the housing boom continues but mortgage rates are increasing, the federal budget is going back up, higher gasoline and heating oil prices will extract a hidden tax from all consumers, most commodities prices are climbing, the national savings rate is approaching zero, interest rates are increasing across the board, and confidence in the economy and the President are sliding. These are not good signs for the near term economy.