Major highs in almost all other currencies were reached relative to the dollar. Canada posted a twelve year high, the euro hit a new all time high over 1.3300 and closed the month at 1.3346. The yen posted a new high at 102.58 as the Bank of Japan stated that they were also rethinking their holdings.

Even Chairman Greenspan admitted that there would be less appetite for dollars with our large current account deficit. In the last two weeks, treasuries fell enough to push the long bond yield from 4.81% to 5.01%.

Congress raised the national debt limit to $8.184 Trillion, which is an indication to the rest of the world that we accept higher deficits into the future.

Domestically, consumer confidence as measured by the Conference Board fell in November to an eight month low, A major influence is the higher pricing of gasoline, heating oil, and natural gas affecting the budgets of all consumers. The Dow climbed from 10,027 to 10,428 when oil dropped from 51.78 to 48.98.

The Federal Reserve raised its short term rate to 2%, with more to come. XAU moved from 103 to close at 106.75 after reaching 110.3.

This month, a new exchange traded fund (ETF) was started and has already picked up over $1.4 billion in assets, meaning purchased gold from the gold market. That would explain some of the rise in gold prices recently. That amount exceeds any single gold fund (The largest, Vanguard, VGPMX, has about $826 million in assets)

In the international arena, hotspots remain which could worry investors enough to consider gold as a naturally safe investment. The Iraq conflict continues, expensive for the U.S. budget. The situation in the Ukraine has the opportunity to become another major political problem between the U.S, Europe, and Russia.

fn       Fund                     1 mo   3 mo  12 mo   2 yr   3 yr
21 VGPMX Vanguard Prec Metals .    9.9   22.0    9.9   97.3  140.0
18 UNWPX US Global World PrecM.    9.4   29.2    4.3  161.9  272.9
 1 ASA   ASA Ltd              .    7.9   14.8   -3.1   57.2  141.0
17 USERX US Global Gold Shrs  .    7.6   24.6   -4.4  117.2  217.1
13 OPGSX Oppenheimer Gold A   .    5.7   18.2   -2.4   90.9  137.1
10 FGLDX AIM Gold & Prec Mtls .    5.3   14.2    1.1   81.1  148.0
11 MIDSX Midas Fund           .    5.2   19.4   -0.0   83.1  163.3
20 INIVX Van Eck Intl Inv GoldA    5.1   18.9   -2.6   87.0  190.6
 4 EKWBX Evergreen Prec Mtls B.    4.9   18.7    1.0  107.4  195.0
 9 LEXMX ING Precious Metals A.    4.8   17.7   -5.7   68.9  146.0
 6 SGGDX First Eagle Gold     .    4.8   13.1    3.9   75.9  207.7
16 TGLDX Tocqueville Gold     .    4.6   15.6   -1.7   89.0  198.1
 7 FKRCX Franklin Gold & PrM A.    4.6   15.0   -0.1   79.6  122.9
15 SGDAX Scudder Gold & Pr M A.    4.2   17.5   -7.7  133.7  232.5
19 USAGX USAA Precious Metals .    4.2   14.1   -7.8   99.7  194.4
 2 BGEIX Amer Cent Global Gold.    4.2   17.0   -3.0   81.0  163.0
 5 FSAGX Fidelity Select Gold .    3.6   16.0   -7.2   55.7  117.5
12 OCMGX OCM Gold             .    3.4   13.4  -10.3   73.5  177.0
 3 INPMX AXP Precious Metals A.    3.4   15.2  -10.7   86.4  149.9
 8 GOLDX Gabelli Gold         .    3.2   14.5   -6.3   85.4  183.8
14 RYPMX Rydex Prec Metals    .    2.5   12.1   -5.8   62.6  104.8

Vanguard(VGPMX) and US Global World Precious Minerals(UNWPX) surged to the lead this month. Vanguard has significant South African holdings, but UNWPX doesn't. With ASA near the top it indicates that the falling dollar may be providing better revenue to South African mines, but that's a shaky argument. In any case, every fund gained, again. Statistically, funds are nearing the annual highs set for most funds last December and January, so the 12 month results don't look good at all. However, looking at the near term and the two year records, makes gold funds look very good.

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 November 30, 2004.

fn        Fund                    pos     nav
21 VGPMX Vanguard Prec Metals .   93.1  17.90
 6 SGGDX First Eagle Gold     .   77.9  17.63
11 MIDSX Midas Fund           .   75.7   2.22
 7 FKRCX Franklin Gold & PrM A.   72.9  19.48
10 FGLDX AIM Gold & Prec Mtl  .   72.3   3.95
16 TGLDX Tocqueville Gold     .   68.0  36.43
 4 EKWBX Evergreen Prec Mtls B.   67.1  33.94
20 INIVX Van Eck Intl Inv GoldA   65.8  11.60
 2 BGEIX Amer Cent Global Gold.   59.0  12.92
18 UNWPX US Global World PrecM.   58.7  17.54
 1 ASA   ASA Ltd              .   57.9  44.82
17 USERX US Global Gold Shrs  .   56.2   8.66
13 OPGSX Oppenheimer Gold A   .   48.3  20.86
 8 GOLDX Gabelli Gold         .   44.0  17.41
 5 FSAGX Fidelity Select Gold .   36.3  28.37
14 RYPMX Rydex Prec Metals    .   33.6  41.72
15 SGDAX Scudder Gold & Pr M A.   31.7  20.36
 9 LEXMX ING Precious Metals A.   28.6   7.20
19 USAGX USAA Precious Metals .   25.4  16.46
12 OCMGX OCM Gold             .   21.8  12.76
 3 INPMX AXP Precious Metals A.   11.2  11.34

This indicator shows that all funds are well above their 52 week averages. Vanguard (VGPMX) was the only one to recently set a new high, but since then backed off a few points.

The following list shows the approximate size of funds as measured in total assets under management in $millions. (As of the end of November) 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
21 VGPMX Vanguard Prec Metals .   826
 2 BGEIX Amer Cent Global Gold.   744
 5 FSAGX Fidelity Select Gold .   732
16 TGLDX Tocqueville Gold     .   563
 6 SGGDX First Eagle Gold     .   539
 7 FKRCX Franklin Gold & PrM A.   490
 1 ASA   ASA Ltd              .   429
19 USAGX USAA Precious Metals .   351
 8 GOLDX Gabelli Gold         .   307
18 UNWPX US Global World PrecM.   302
20 INIVX Van Eck Intl Inv GoldA   283
13 OPGSX Oppenheimer Gold A   .   259
14 RYPMX Rydex Prec Metals    .   251
15 SGDAX Scudder Gold & Pr M A.   150
10 FGLDX AIM Gold & Prec Mtl  .   117
 9 LEXMX ING Precious Metals A.    92
17 USERX US Global Gold Shrs  .    81
12 OCMGX OCM Gold             .    79
 3 INPMX AXP Precious Metals A.    72
11 MIDSX Midas Fund           .    59
 4 EKWBX Evergreen Prec Mtls B.    47

Vanguard (VGPMX) passed both Fidelity(FSAGX) and American Century(BGEIX) in total assets during the past two months, but Tocqueville(TGLDX) and First Eagle (SGGDX) are gaining. Over the past two years, as they have gone up in NAV, all of these funds have been receiving new investment funds. The publicity of gold reaching new sixteen year highs has definitely brought about increased interest in the gold sector.

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
18 UNWPX US Global World PrecM.   1.48
 3 INPMX AXP Precious Metals A.   1.29
13 OPGSX Oppenheimer Gold A   .   1.24
15 SGDAX Scudder Gold & Pr M A.   1.24
19 USAGX USAA Precious Metals .   1.17
 5 FSAGX Fidelity Select Gold .   1.13
12 OCMGX OCM Gold             .   1.07
17 USERX US Global Gold Shrs  .   1.05
14 RYPMX Rydex Prec Metals    .   1.02
21 VGPMX Vanguard Prec Metals .   1.00
 2 BGEIX Amer Cent Global Gold.   0.99
 8 GOLDX Gabelli Gold         .   0.96
11 MIDSX Midas Fund           .   0.94
10 FGLDX AIM Gold & Prec Mtl  .   0.94
 9 LEXMX ING Precious Metals A.   0.93
 4 EKWBX Evergreen Prec Mtls B.   0.90
20 INIVX Van Eck Intl Inv GoldA   0.90
 1 ASA   ASA Ltd              .   0.90
 7 FKRCX Franklin Gold & PrM A.   0.82
 6 SGGDX First Eagle Gold     .   0.80
16 TGLDX Tocqueville Gold     .   0.79

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. For the two monthly leaders, UNWPX has high price movement but VGPMX has only average movement.

As the price of gold reaches new sixteen year highs every week, in other currencies it is not significantly increasing, which means that this increase in gold and gold funds is a function of the weak and decreasing value of the dollar, and very little else.

Economically, America is approaching the edge of a financial cliff, where the dollar is balancing on a slippery slope. Since early September when the dollar index climbed above 90, it has been in a slow slide, which accelerated in early October. In early November it was temporarily supported at 85 before it resumed a decline, closing November at 81.81. That amounts to almost a 10% drop in three months. This means everything imported will be priced higher, but more important, much investment capital will no longer be coming here to support our way of life and pay for our deficits.

To all Americans, imports will become noticeably more expensive and to lower income citizens it will start to hurt. After the Clinton administration created its strong dollar policy in 1995, the dollar reached excessively high values and for years the U.S. consumer has had the benefit of unusually cheap imports and therefore minimal price inflation. With a government supported low interest rate and an overvalued dollar, American buyers have been on a spending binge and trade deficits have increased to the point that we have had over four months of $50 billion deficits, with no end in sight.

Combined with the increasing consumption of China, fueled by its trade surplus with the U.S., all basic commodities are soaring in price. The most obvious to us is the rise in the price of petroleum products, such as gasoline and natural gas. Shades of 1973-79.

The U.S. trading deficits are of such size and our trading policies are such that they will not just go away, so next month after another $50 billion plus deficit, the situation will be worse and the dollar will once again be under pressure to drop further. Because the twin deficits are finally being considered as negative by many investors, it will remain a major investment factor for awhile.

If I were a central banker and wanted to reduce my stockpile of dollars, I would do two things: (1) use dollars to buy commodities that I needed that my country didn't have, such as gold, oil, copper, iron ore, or (2) buy U.S. assets, such as stocks or real estate which would help provide income in the future. Both of these options cause asset inflation inside the U.S. as the money available to markets increases and prices soar. In addition, by no longer funding treasury auctions, foreign would-be investors would cause U.S. domestic interest rates to go up. With higher rates, easy loans would disappear and the housing market would deflate due to higher mortgage requirements and fewer buyers. With higher mortgage rates for adjusted mortgages, we would expect to see more bankruptcies.

In the near term, the recent climb in gold is definitely ready for a correction which could be of some magnitude, perhaps a test back to 425-430 and dropping gold funds down 10-20%. Such a move would require a rally in the dollar index back to the 85 area, which would require some international banking support and Bush administration recognition of the problem. Without an international cry for a supported dollar, gold will continue to rise.

Publicity for gold is reaching newspapers and magazine covers and the small investor will soon get on the bandwagon. Even my brother has asked me about gold. This bandwagon will run for at least a few months and maybe a year before it reaches excess and will most certainly push gold up to 500 or higher. If during that time the rest of the world notices, demand for gold will outpace the dollar's decline and will create a new market.. At that point, everything will have to be reassessed.