The U.S. economy suddenly reported an unexpected large increase in growth of 7.2% for the third quarter of 2003, as personal income, housing, construction, exports, business investment, and banking all posted significant increases. It was the largest increase since 1984, and included an increase in some manufacturing jobs. The Dow closed the month at 9801, up from 9275, and getting closer to punching through the symbolic 10,000 level. Although the University of Michigan's index of consumer sentiment increased, consumer spending for September decreased slightly.

Due to political considerations, the Bush administration and Congress are now addressing the trade deficit and the Chinese yuan currency evaluation much closer. The loss of jobs over the past three years and the lack of new jobs created by the latest recovery has sparked interest around the country, particularly the unemployed. The solutions offered, including a 27% tariff on imports from China, are like killing an ant with a hammer. To look good, the House passed a resolution for China to stop its peg to the dollar as it currently is. It's not quite that simple.

The Federal Reserve kept the short term federal funds rate at 1.0% for another month. The long bond yield increased from 4.96% to 5.10% as 30 year mortgage rates remained around 6%. On Wall Street, the IPO market regained some of its activity once again.

Fannie Mae had a slight miscalculation of $1.1 billion in evaluating mortgage assets, which caused its stock to dip temporarily. With mortgage rates still low, the housing markets continued to do well.

The mutual fund industry is still being investigated as more major news surfaces about possible larceny caused or permitted by fund managers. The entire industry needs to clean itself of any doubt that it is not an honest way to invest by the average citizen. As it turns out, the market is cleaning itself as many large pension funds are leaving Putnam Investments (Marsh & McLennan, Inc), and the CEO of Strong Funds has resigned. Federal and State investigations threaten to put someone in jail.

In Russia, the government has arrested a major oil company owner/investor/capitalist for corruption, which puts a dampener on investing in Russia until they get that straightened out. Is he a crook or is the government returning to strong-armed tactics?

fn       Fund                     1 mo   3 mo  12 mo   2 yr   3 yr
18 UNWPX US Global World PrecM.   22.3   54.5  115.0  204.4  235.5
15 SGDAX Scudder Gold & Pr Mts.   20.1   56.4  121.2  202.5  289.1
 4 EKWBX Evergreen Prec Mtls B.   16.6   38.6   85.0  157.3  262.1
17 USERX US Global Gold Shrs  .   15.6   40.4   91.3  177.2  224.2
13 OPGSX Oppenheimer Gold A   .   15.5   38.2   72.0  108.6  160.9
 3 INPMX AXP Precious Metals A.   15.0   36.9   77.1  134.6  178.2
19 USAGX USAA Gold            .   14.1   37.9   81.2  164.8  276.9
16 TGLDX Tocqueville Gold     .   12.9   34.1   77.0  176.5  259.3
 8 GOLDX Gabelli Gold         .   11.6   32.0   78.7  169.7  271.5
12 OMCGX Monterey OCM Gold    .   11.3   28.7   68.1  160.1  287.7
10 FGLDX INVESCO Gold & Pr Mtl.   11.1   25.9   59.3  114.3  170.7
 9 LEXMX ING Precious Metals  .   10.5   23.0   57.7  127.5  205.7
11 MIDSX Midas Fund           .   10.3   29.1   59.4  131.8  151.9
21 VGPMX Vanguard Prec Metals .   10.2   30.9   56.2   87.2  139.0
20 INIVX Van Eck Intl Inv GoldA   10.0   29.3   70.0  160.2  240.4
 5 FSAGX Fidelity Select Gold .    9.6   23.1   48.9  108.9  176.7
 2 BGEIX Amer Cent Global Gold.    9.4   26.1   63.8  131.5  246.1
 7 FKRCX Franklin Gold & PrM A.    9.1   28.0   59.8   95.6  130.1
14 RYPMX Rydex Prec Metals    .    7.9   19.3   48.6   82.4  147.5
 6 SGGDX First Eagle Gold     .    6.1   19.1   53.6  159.2  260.1
 1 ASA   ASA Ltd              .    2.4    9.9   48.5  142.3  232.2

U.S. Global World Precious Minerals (UNWPX) was top fund for the month with Scudder (SGDAX) close behind. As mentioned last month, since Scudder Gold & Precious Metals 'S' (SCGDX) is closed to new investors, I am now following Scudder Gold & Precious Metals 'A'(SGDAX), a newer and smaller version with the same price movement. Portfolio management and quote histories are essentially the same, so there is little difference except for the front load on the 'A' fund(SGDAX).

Fund numbers for the three month and one year periods are pleasantly positive for all funds. The advance since early April, when gold was at 322 and silver was at 4.39 has been magnificent. In seven months, XAU had climbed from a low of 62.2 to 98.0 (+57%). SGDAX and UNWPX have both doubled in the last 12 months.

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 October 31, 2003.

fn        Fund                    pos     nav
18 UNWPX US Global World PrecM.  100.0   16.04
15 SGDAX Scudder Gold & Pr Mts.  100.0   20.66
 4 EKWBX Evergreen Prec Mtls B.  100.0   31.00
17 USERX US Global Gold Shrs  .  100.0    7.65
13 OPGSX Oppenheimer Gold A   .  100.0   20.09
 3 INPMX AXP Precious Metals A.  100.0   11.99
19 USAGX USAA Gold            .  100.0   16.47
16 TGLDX Tocqueville Gold     .  100.0   34.71
 8 GOLDX Gabelli Gold         .  100.0   16.94
12 OMCGX Monterey OCM Gold    .  100.0   12.64
10 FGLDX INVESCO Gold & Pr Mtl.  100.0    3.60
 9 LEXMX ING Precious Metals  .  100.0    6.94
11 MIDSX Midas Fund           .  100.0    2.04
20 INIVX Van Eck Intl Inv GoldA  100.0   10.55
 7 FKRCX Franklin Gold & PrM A.  100.0   17.58
21 VGPMX Vanguard Prec Metals .   99.3   15.51
 6 SGGDX First Eagle Gold     .   99.0   15.99
 2 BGEIX Amer Cent Global Gold.   98.4   11.99
14 RYPMX Rydex Prec Metals    .   96.3   38.14
 5 FSAGX Fidelity Select Gold .   96.3   28.91
 1 ASA   ASA Ltd              .   86.4   43.45

Most funds set new highs during October with many doing so on the last day of the month. This indicator demonstrates a fund's ability to retain previous advances without falling out of bed when gold has a bad month or two, but in this case most were still going up as of the end of the month.

The following list shows the approximate size of funds as measured in total assets under management in $millions. (As of October 31) 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 .   774
21 VGPMX Vanguard Prec Metals .   607
 2 BGEIX Amer Cent Global Gold.   552
 1 ASA   ASA Ltd              .   416
 7 FKRCX Franklin Gold & PrM A.   373
20 INIVX Van Eck Intl Inv GoldA   298
 6 SGGDX First Eagle Gold     .   254
 8 GOLDX Gabelli Gold         .   249
19 USAGX USAA Gold            .   240
16 TGLDX Tocqueville Gold     .   232
13 OPGSX Oppenheimer Gold A   .   177
18 UNWPX US Global World PrecM.   170
10 FGLDX INVESCO Gold & Pr Mtl.   138
 9 LEXMX ING Precious Metals  .   114
14 RYPMX Rydex Prec Metals    .   106
 3 INPMX AXP Precious Metals A.    71
17 USERX US Global Gold Shrs  .    66
11 MIDSX Midas Fund           .    66
 4 EKWBX Evergreen Prec Mtls B.    51
12 OMCGX Monterey OCM Gold    .    48
15 SGDAX Scudder Gold & Pr Mts.    33

The total capitalization of all gold mining investment worldwide is still less than $90 billion, but increasing with every asset re-evaluation. Anymore infusions of cash into this market by enlightened investors will push the value of gold equities and gold funds to higher highs.

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.    1.87
18 UNWPX US Global World PrecM.    1.75
17 USERX US Global Gold Shrs  .    1.37
 4 EKWBX Evergreen Prec Mtls B.    1.34
 8 GOLDX Gabelli Gold         .    1.25
 3 INPMX AXP Precious Metals A.    1.21
19 USAGX USAA Gold            .    1.20
13 OPGSX Oppenheimer Gold A   .    1.13
 1 ASA   ASA Ltd              .    1.13
16 TGLDX Tocqueville Gold     .    1.10
12 OMCGX Monterey OCM Gold    .    1.10
 2 BGEIX Amer Cent Global Gold.    1.03
11 MIDSX Midas Fund           .    0.98
 7 FKRCX Franklin Gold & PrM A.    0.93
20 INIVX Van Eck Intl Inv GoldA    0.89
 9 LEXMX ING Precious Metals  .    0.89
10 FGLDX INVESCO Gold & Pr Mtl.    0.88
 6 SGGDX First Eagle Gold     .    0.86
21 VGPMX Vanguard Prec Metals .    0.86
14 RYPMX Rydex Prec Metals    .    0.83
 5 FSAGX Fidelity Select Gold .    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.

U.S Global Precious Minerals (UNWPX) not only took the lead for this month but has also taken over the two year lead with Scudder (SGDAX), U.S. Gold Shares (USERX), and Tocqueville (TGLDX) close behind.

October was another very good month for gold funds as gold made another run at 400. Solid floor support for the gold price every time the metal takes a break gives a positive feel to future price movements and seems to indicate that the gold bull market is well established worldwide, not just a trader's playground.

Technically speaking, this market could be classified as overbought, but the essential economic fundamentals are still very bullish with the national trade deficits projected far into the future and the dollar still weakening. The only exception would be for the latest U.S. GDP growth reports to give the dollar a base of support in the near term and cause gold to fall back from its recent advance. That goes double for gold equities.

The Chinese currency peg is but one of many factors which cause the trade deficit to remain so high. The willingness of U.S. consumers to buy cheaper overseas products is a result of free trade, drawing investment capital overseas from domestic producers. Therefore fewer domestic jobs. Until the dollar slides more, it will continue. That means a higher gold price is inevitable as measured in dollars.

If Congressional action forces China to float the yuan or forces a higher evaluation against the dollar, it would cause all imported items from China to cost more to U.S. buyers. The interaction with other currencies would change worldwide and would cause the dollar to fall an indefinite amount in such a way that the price of gold would almost certainly increase, probably in all currencies except the yuan. To counter that, China would probably buy gold with its dollar hoard, giving gold a kick in the pants.

While there has been an increase in service jobs and an increase in productivity per worker, this economy cannot continue to grow unless domestic industries create more jobs for American workers, not overseas manufacturing locations. The entire economic situation must be addressed, not just China.

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), to 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,

http://www.mips1.net/MGGold.nsf/UNID/4225685F0043D1B285256DB0006DA7AC?OpenDocument

Making a case for gold:
http://moneycentral.msn.com/content/P59638.asp

Smart Money page link
http://www.smartmoney.com/trendspotting/index.cfm?story=20030930

Referring to the funds being investigated for fraud, I would not touch any fund family where fund managers allowed favored investors to rip off the small investor. There are too many honest funds available for someone to invest with the crooks. As far I know, all gold fund families are clean.