Worldwide consumption of gold has been steadily increasing as a commodity, driven partially by economic growth in India and China producing a much higher demand for gold jewelry. Overall commodity prices as measured by the Goldman Sachs Commodities Index rose, and are up 40% for 2005. The price of Orange Juice recently reached a seven year high. The price of oil slid back to $61, but is still relatively high. It's obvious that the dollar does not go as far as it once did. It's called 'Inflation'.

Due to rising gasoline prices and other results of a severe hurricane season, the Confidence Report published by the University of Michigan dropped significantly. Consumers are becoming more doubtful about the future and the signs of inflation ignored by the government.

September existing home sales were up near highs, with prices 10% higher on average, but new home sales stalled. While home construction spending surged, unsold houses and the time-to-sell have jumped to new records. The long term mortgage rate climbed to 6.15%. A large segment of new sales is not for living, but for investment, one sign of a market top.

A major auto supply maker, Delphi, declared bankruptcy due to uncontrollable expenses, a bad sign for the future of GM and Ford. They both have billions of 'junk' debt on someone else's balance sheet and used as collateral by someone.

On the last day of the month, Barrick Gold(ABX) announced its intent to take over Placer Dome(PDG). Placer stock took off, gaining over 3 to near 20, and Barrick plunged. Since both are in XAU, it was mostly a wash. Funds with Barrick and not Placer dropped. Those with Placer benefited.

President Bush nominated Appeals Court Judge Samuel Alito for the vacancy in the Supreme Court and seemed to get acceptable comments. However, his approval by the Senate could stir up some serious hostilities from those who disapprove.

President Bush nominated Professor Ben Bernanke to replace Chairman Greenspan as the next Chairman of the Federal Reserve in January and the market rallied. It then fell back, yet recovered. It's obvious that the market is confused. Bernanke has voiced his intent to do anything to avoid deflation, so his intentions to fight inflation are in doubt. Gold shot up and then fell back. It, too, doesn't know what to do.

fn       Fund                     1 mo   3 mo  12 mo   2 yr   3 yr
 1 ASA   ASA Ltd              .   -2.5   21.9    6.5    4.1   54.6
 7 SGGDX First Eagle Gold A   .   -4.0   12.9    2.5   11.3   72.1
11 MIDSX Midas Fund           .   -4.8   21.3   13.3   17.2   97.1
13 OPGSX Oppenheimer Gold A   .   -5.4   12.6    5.0    9.1   89.7
 6 FSAGX Fidelity Select Gold .   -5.7   18.7    9.9    7.3   65.3
10 LEXMX ING Precious Metals A.   -6.1   16.7    6.1    8.4   71.0
18 USERX US Global Gold Shares.   -6.2   14.5   10.6   16.8  123.4
 8 FKRCX Franklin Gold & PrMt A   -6.5   16.8    8.9   16.0   87.1
 2 FGLDX AIM Gold & Pr Mtls Inv   -6.5   12.3    8.4   17.0   86.3
12 OCMGX OCM Gold             .   -6.7   13.2   -0.4   -1.2   67.1
15 RYPMX Rydex Prec Metals    .   -6.7   13.4   -5.7    0.6   49.6
20 USAGX USAA Precious Metals .   -6.7   14.0    7.4    8.1  105.8
 9 GOLDX Gabelli Gold         .   -6.8   16.8    3.9    4.4   86.6
17 TGLDX Tocqueville Gold     .   -6.8   12.1    5.7    7.9   91.1
16 SGDAX Scudder Gold & Pr Mt A   -6.9   11.4   -5.9   -5.7  111.1
21 INIVX Van Eck Intl Inv GoldA   -7.0   15.3    4.9    9.8   86.7
22 VGPMX Vanguard Prec Metals .   -7.2   10.1   29.3   43.5  132.1
 3 BGEIX Amer Cent Global Gold.   -7.2   14.1    0.3    5.8   74.5
 4 INPMX AXP Precious Metals A.   -7.4   11.7   -0.4   -2.6   79.7
 5 EKWBX Evergreen Prec Mtls B.   -7.7   15.1    5.5   12.3  108.5
19 UNWPX US Global World Pr Mns   -8.4   11.0   10.9   23.3  165.6
14 PMPIX Profund Prec Mtls Ultr   -8.5   25.3    1.8    3.7   86.2

While the price of gold reached $477 in mid-October, gold stocks and funds were not so positive. Most gold stocks were down at the end of the month, taking gold funds down also. ASA Limited (NYSE-ASA) held the top spot by virtue of declining the least. The strength of the dollar benefited the business climate of South African stocks, which ASA predominately holds, so ASA's recent gains have moved it to the head of the class, primarily as a result of currency exchange rates.

Even with a poor October, the three month period is excellent due to August and September gains. To some, this recent dip is the correction expected.

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 October 30, 2005.

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fn          Fund                    pos   10/31/05
11 MIDSX Midas Fund           .    71.4    2.39
 6 FSAGX Fidelity Select Gold .    68.8   28.69
22 VGPMX Vanguard Prec Metals .    66.8   20.85
13 OPGSX Oppenheimer Gold A   .    64.7   20.25
10 LEXMX ING Precious Metals A.    63.4    7.34
 1 ASA   ASA Ltd              .    63.3   45.61
18 USERX US Global Gold Shares.    61.7    8.85
 7 SGGDX First Eagle Gold A   .    60.3   17.45
 8 FKRCX Franklin Gold & PrMt A    57.5   20.81
20 USAGX USAA Precious Metals .    56.0   16.93
19 UNWPX US Global World Pr Mns    55.7   17.30
 9 GOLDX Gabelli Gold         .    54.7   17.47
17 TGLDX Tocqueville Gold     .    54.1   35.52
 2 FGLDX AIM Gold & Pr Mtls Inv    53.4    4.02
14 PMPIX Profund Prec Mtls Ultr    50.7   32.38
 5 EKWBX Evergreen Prec Mtls B.    47.4   34.48
 3 BGEIX Amer Cent Global Gold.    47.3   12.44
12 OCMGX OCM Gold             .    44.2   11.92
21 INIVX Van Eck Intl Inv GoldA    43.5   10.56
15 RYPMX Rydex Prec Metals    .    36.3   38.64
 4 INPMX AXP Precious Metals A.    26.2    9.73
16 SGDAX Scudder Gold & Pr Mt A    13.9   16.97

Gold funds are down from recent highs set in August and September, but all are holding up well and above their individual yearly average. Looking at this list, the correction hasn't done much and may not be finished.

The following list shows the approximate size of funds as measured in total assets under management. (In $millions as of the end of October) 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 .   1522
 6 FSAGX Fidelity Select Gold .    740
 3 BGEIX Amer Cent Global Gold.    673
 7 SGGDX First Eagle Gold A   .    561
17 TGLDX Tocqueville Gold     .    540
 8 FKRCX Franklin Gold & PrMt A    517
 1 ASA   ASA Ltd              .    437
20 USAGX USAA Precious Metals .    343
19 UNWPX US Global World Pr Mns    294
 9 GOLDX Gabelli Gold         .    279
21 INIVX Van Eck Intl Inv GoldA    263
13 OPGSX Oppenheimer Gold A   .    262
15 RYPMX Rydex Prec Metals    .    139
16 SGDAX Scudder Gold & Pr Mt A    127
 2 FGLDX AIM Gold & Pr Mtls Inv    110
10 LEXMX ING Precious Metals A.     91
12 OCMGX OCM Gold             .     76
18 USERX US Global Gold Shares.     73
14 PMPIX Profund Prec Mtls Ultr     73
 4 INPMX AXP Precious Metals A.     67
11 MIDSX Midas Fund           .     60
 5 EKWBX Evergreen Prec Mtls B.     44

Fund holdings decreased due to lower net asset values during October. In addition, there is still no rush by the average investor to own gold, even with the indications of inflation coming around the corner. The public is not yet interested and the amount of money flowing into gold funds is still a trickle. If these numbers ever start to increase with vigor, it will be a sure sign that the investment world is waking up, and you had better be in already.

Vanguard Precious Metals (VGPMX) is still the largest by far.

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.

ASA has slowly moved to the front during the summer and took the top spot this month. The spread of funds is fairly tightly packed and most are favorable for the last twelve months. However, last November was a very good month and it will be hard to match unless gold sets a quick base and starts its next advance.

It seems obvious that the housing boom cannot continue at its present rate, and when the housing bubble deflates, there will be much less money to spend or invest. Since housing has become a huge employer, many won't be working anymore. It will be called a 'Recession'. It will deflate the economy and may deflate gold stocks also.

Political nominations and the resulting heated discussions in the approval process by politicians can often disrupt confidence in the dollar. We will have plenty of this in the next two months. Gold will benefit.

The indictment and court case of a top White House staff member may cause some political problems for the administration and indirectly weaken the dollar. Gold will benefit again.

All fundamental concepts point toward a weaker dollar and a higher gold price, so why are we considering the fact that gold may correct substantially? Most gold stocks, while up for the year, have given up recent gains and no longer have upward momentum. Gold funds are up for the year, but don't seem to have much of a positive direction. On the last day of the month, gold dropped $8 and silver dropped $.24.

At what point will the market finally recognize that the economy is in a very bad position, even with earnings reports positive, incomes increasing, and a seemingly booming housing market.

Technically speaking, it gold closes below 462 it will confirm a head and shoulders formation, which is bearish. Silver's abrupt drop Monday to 7.55 was the lowest since the first week of the month, and could be considered bearish.

Fundamentally, you could take a position and hold on for the long run, but if gold corrects like some think it will, funds could be down another 20-30%, exactly what most experts don't expect. A correction, if it comes, should appear by year's end.