On the last day of the month, the Federal Reserve lowered its target federal funds rate by .25% to 4.50%. The long bond yield closed the month jumping to 4.75%, and unless the market brings the rate down, there probably won't be another cut soon. The stock market and gold both responded by soaring again. Gold closed the day near 797 and the Dow closed at 13,930.

Since reaching a recent peak at 83 in June, the dollar has been in a consistent downtrend. During August it made a more serious turn south from 81.82 when the Federal Reserve decided to lower interest rates to rescue big spenders and try to curtail the growing credit squeeze which threatened the entire U.S. investment market. Of course it did nothing to eliminate the large derivative inventory hanging over the large investment houses. Gold responded because the dollar is at an increasing risk.

China announced that they will allow the yuan to float more in an attempt to slow domestic Chinese inflation, so the yuan is expected to approach 7.4 to the dollar from a recent 8. This will help our exports a little and get lots of press space, but was expected.

Turmoil among the financial big boys showed itself with a major write-off by Merrill Lynch due to debt obligations collapsing due to subprime loans. Merrill is not alone. Bank of America announced large layoffs and Citigroup admitted subprime exposure. Countrywide Financial, a large mortgage lender, is also struggling to survive. Our financial houses have many problems, and the federal government knows it. It is not restricted to U.S. firms, as Great Britain and Switzerland have problems also.

Existing home sales dropped 8% in September, and 19% when compared to last year. Oil prices jumped from $82 to $94 in one month.

Since ING Natural Resources (LEXMX, previously called Precious Metals Fund) is no longer considered a gold fund, it will be removed this month from evaluations and comparisons by EagleWing Research.

fn            Fund                1 mo   3 mo  12 mo   2 yr   3 yr
11 MIDSX Midas Fund           .   17.2   27.3   59.5  165.7  200.9
19 UNWPX US Global World Pr Mns   17.0   25.9   45.3  154.4  182.1
14 PMPIX Profund Prec Mtls Ultr   15.3   40.1   54.4   98.0  101.7
21 INIVX Van Eck Intl Inv GoldA   15.3   30.4   51.3  135.8  148.0
 4 SGDAX DWS Gold & Prec Mtls A   15.1   31.3   45.9  113.8  103.6
18 USERX US Global Gold Shares.   14.5   30.4   32.6  131.4  155.9
20 USAGX USAA Precious Metals .   14.1   32.9   50.9  149.2  169.8
 3 BGEIX Amer Cent Global Gold.   14.0   29.6   34.5   98.6   99.3
 9 GOLDX GAMCO Gold AAA       .   14.0   32.1   47.0  120.1  130.7
 5 EKWBX Evergreen Prec Mtls B.   13.0   31.4   44.2  124.6  139.3
 8 FKRCX Franklin Gold & PrMt A   12.6   30.6   48.7  124.7  151.1
13 OPGSX Oppenheimer Gold A   .   12.5   29.7   59.1  154.0  179.9
 2 FGLDX AIM Gold & Pr Mtls Inv   12.4   26.1   41.8  105.6  122.8
12 OCMGX OCM Gold             .   12.3   25.2   44.1  119.5  118.7
 6 FSAGX Fidelity Select Gold .   12.1   32.7   48.4  112.6  137.3
16 RYPMX Rydex Prec Metals    .   12.0   24.8   39.6   90.9   81.2
23 GDX   Mkt V Gold Miners ETF.   11.6   26.7   33.3  	         
27 XAU   Phlx Gold/Silver Index   11.5   26.5   37.0   74.4   81.9
26 HUI   Amex Gold Bugs Index .   10.7   26.1   36.5   95.2   86.3
15 INPMX Riversource Prec MtlsA   10.7   21.1   36.4  113.3  112.6
 7 SGGDX First Eagle Gold A   .   10.6   27.6   37.4   89.3   96.3
22 VGPMX Vanguard Prec Metals .    9.6   22.3   47.1  116.2  193.3
17 TGLDX Tocqueville Gold     .    8.8   21.7   38.1  110.1  123.0
 1 ASA   ASA Ltd              .    7.4   24.9   37.9   85.2  105.6
24 GLD   StrtTrks Gold Shrs ETF    7.0   19.5   30.5   69.4
 5 SLV   iShrs Silver Trust ETF    5.2   12.2   17.1	         

As you can see, this was a good month for gold funds. All but one reached a new high on the last day of the month, and the one exception set one the week before. However, current conditions can be considered to be overbought and in danger of a correction. Long term is still up.

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 the end of October:

				           nav
fn          Fund                  pos   09/28/07 10/31/07
 1 ASA   ASA Ltd              .   100.0   59.97   80.30
 2 FGLDX AIM Gold & Pr Mtls Inv   100.0    6.09    8.08
 3 BGEIX Amer Cent Global Gold.   100.0   17.81   24.71
 4 SGDAX DWS Gold & Prec Mtls A   100.0   20.11   28.08
 5 EKWBX Evergreen Prec Mtls B.   100.0   53.04   73.40
 6 FSAGX Fidelity Select Gold .   100.0   34.06   47.58
 7 SGGDX First Eagle Gold A   .   100.0   20.49   27.28
 8 FKRCX Franklin Gold & PrMt A   100.0   31.98   44.05
 9 GOLDX GAMCO Gold AAA       .   100.0   24.66   34.61
11 MIDSX Midas Fund           .   100.0    4.38    6.35
12 OCMGX OCM Gold             .   100.0   17.41   23.77
13 OPGSX Oppenheimer Gold A   .   100.0   30.78   42.40
14 PMPIX Profund Prec Mtls Ultr   100.0   39.85   60.72
15 INPMX Riversource Prec MtlsA   100.0   13.99   18.22
16 RYPMX Rydex Prec Metals    .   100.0   55.68   73.75
18 USERX US Global Gold Shares.   100.0   14.38   20.25
19 UNWPX US Global World Pr Mns   100.0   26.07   37.03
20 USAGX USAA Precious Metals .   100.0   27.80   38.37
21 INIVX Van Eck Intl Inv GoldA   100.0   15.75   22.20
22 VGPMX Vanguard Prec Metals .   100.0   31.64   39.66
23 GDX   Mkt V Gold Miners ETF.   100.0   37.65   50.60
24 GLD   StrtTrks Gold Shrs ETF   100.0   66.52   78.62
26 HUI   Amex Gold Bugs Index .   100.0  327.24  435.08
27 XAU   Phlx Gold/Silver Index   100.0  140.77  188.10
17 TGLDX Tocqueville Gold     .    98.9   48.79   64.39
25 SLV   iShrs Silver Trust ETF    81.6  119.98  143.60

Every fund hit a new high in October and all but one did it again on the last day of the month after the Federal Reserve lowered the fed funds rate. All are in a strong upward trend, which also sets them up for a correction. In any case, as the dollar drops, gold and associated funds rise. It's almost a pure inverse relationship, and definite over the long term.

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 .   4418
 6 FSAGX Fidelity Select Gold .   1880
 3 BGEIX Amer Cent Global Gold.   1297
 8 FKRCX Franklin Gold & PrMt A   1258
19 UNWPX US Global World Pr Mns   1193
17 TGLDX Tocqueville Gold     .   1043
 7 SGGDX First Eagle Gold A   .    898
13 OPGSX Oppenheimer Gold A   .    891
20 USAGX USAA Precious Metals .    872
 1 ASA   ASA Ltd              .    807
21 INIVX Van Eck Intl Inv GoldA    566
 9 GOLDX GAMCO Gold AAA       .    530
23 GDX   Mkt V Gold Miners ETF.    435
18 USERX US Global Gold Shares.    299
16 RYPMX Rydex Prec Metals    .    256
14 PMPIX Profund Prec Mtls Ultr    254
 4 SGDAX DWS Gold & Prec Mtls A    229
11 MIDSX Midas Fund           .    197
 2 FGLDX AIM Gold & Pr Mtls Inv    196
12 OCMGX OCM Gold             .    139
15 INPMX Riversource Prec MtlsA    107
 5 EKWBX Evergreen Prec Mtls B.     99

We now have six funds over a billion dollars in assets, with VGPMX in the lead. For investment purposes, size doesn't seem to make much difference.

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
14 PMPIX Profund Prec Mtls Ultr    1.52
11 MIDSX Midas Fund           .    1.16
13 OPGSX Oppenheimer Gold A   .    1.13
 9 GOLDX GAMCO Gold AAA       .    1.09
21 INIVX Van Eck Intl Inv GoldA    1.09
27 XAU   Phlx Gold/Silver Index    1.06
 8 FKRCX Franklin Gold & PrMt A    1.06
20 USAGX USAA Precious Metals .    1.05
 4 SGDAX DWS Gold & Prec Mtls A    1.05
 5 EKWBX Evergreen Prec Mtls B.    1.03
23 GDX   Mkt V Gold Miners ETF.    1.03
 3 BGEIX Amer Cent Global Gold.    1.02
19 UNWPX US Global World Pr Mns    1.00
26 HUI   Amex Gold Bugs Index .    1.00
 6 FSAGX Fidelity Select Gold .    0.99
22 VGPMX Vanguard Prec Metals .    0.97
18 USERX US Global Gold Shares.    0.97
 1 ASA   ASA Ltd              .    0.94
12 OCMGX OCM Gold             .    0.94
16 RYPMX Rydex Prec Metals    .    0.87
 2 FGLDX AIM Gold & Pr Mtls Inv    0.87
17 TGLDX Tocqueville Gold     .    0.86
15 INPMX Riversource Prec MtlsA    0.83
 7 SGGDX First Eagle Gold A   .    0.79
25 SLV   iShrs Silver Trust ETF    0.63
24 GLD   StrtTrks Gold Shrs ETF    0.60

The beta for each fund may change as the fund advances and declines, but the general position on the list 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 recent rise of gold and funds over the past three months really sets up conditions for a correction, especially if the Dow and NASDAQ roll over. All have been rising with the abundance of monetary liquidity worldwide, which also means that gold doesn't depend so much on New York quotes as much as it did in the past. Demand for gold has become worldwide due to inflated currencies and wealth creation, which means that its price is driven more by foreign money than traders in New York.

Watching activity in the gold and silver markets has shown a direct relationship on any given day with a concurrent rise in NASDAQ, Dow, and gold stocks. This appears on a minute by minute occurrence, as if someone flipped the buy or sell switch. It is not a historically established relationship, yet it is a consistent relationship over the past year. This tells me that if stocks go down, so will gold funds. Be warned.

The recent lowering of the federal funds rate to 4.50% was considered a good thing for the markets. It probably eased the mortgage problem somewhat, even if the problem is far beyond fixing it now with a small interest rate change. As a result, the Dow/NASDAQ rallied and optimism ruled, even with the dollar in a consistent decline. On a daily basis, when the dollar declined, gold went up, which makes perfectly good sense. I can understand why most commodities go up as the dollar weakens, but so far, the market goes up as the dollar falls. Just how low can the dollar slide and still be good for the economy, in the eye of the experts?

Another reason for the rise in the NASDAQ recently is the possibility of foreign money coming into the markets with volume as central banks try to convert their dollar holding into something real without crashing the greenback. The rise in gold also fits this agenda since many central banks have openly declared an intent to convert dollars into other currencies and gold. That, of course, is hard to prove.

The U.S. economy seems to be rolling along on a smooth road, according to the government experts, including an inflation rate of less that 2% and a GDP growth of 3.9%. Someone is cooking the books. Anyone who has been a consumer over the past two years should notice that prices are up over 10% for most items, including food and energy. The Economist estimated that consumer items were increasing at a 16% pace. Who is kidding whom?

This week there were a potload of major companies laying off employees as the housing market gets worse and consumers pull back. Consumer confidence is plunging. The subprime market will get worse until at least next summer due to the increasing number of mortgages requiring refinancing. Meanwhile, housing inventories and foreclosures grow to record levels, either of which would normally cause a slowdown in the economy.

What's the big deal, you may ask. Well, I expect gold stocks to be affected by any market crash, only to be rescued by a gold soaring because the dollar is trashed. That is not a pretty picture because even gold investors can be hurt if you ride the market down.

The long bond yield has been bouncing around like big money is moving into and out of the Treasury markets on a daily basis, and that is probably the case. On the last day of the month, as the Federal Reserve lowered rates, the Dow rallied and the dollar dropped, but the long bond yield jumped to 4.75%. It had been testing its yearly low near 4.64%.

I would expect the recent fires in California to put a slight damper on the economy, but how much is anyone's guess. I don't see them affecting metals.