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Precious metals group tarnished as price of bullion slides


One of the former bright spots in investing -- precious metals -- saw its performance tarnished in February.

Funds that invest in gold and precious metals tumbled an average of 6.5 per cent last month as the price of bullion slid.

The group's average one-year return to Feb. 28 still stands at a blazing 30.2 per cent.

Among the top performers last month, the $2.1-million FCMI Precious Metals Fund Inc. gained 1.4 per cent, the $300,000 Cambridge Precious Metals (Sagit) lost 4.2 per cent, and the $45.3-million Altamira Precious and Strategic Metal Fund slipped 4.3 per cent.

The $93.5-million Sprott Gold and Precious Minerals Fund dipped 4.8 per cent, the $299.4-million Royal Precious Metals Fund dropped 5.1 per cent and the $44.7-million CIBC Precious Metals Fund decreased 5.2 per cent.

Altamira fund manager Craig Porter said the poor performance of gold bullion in February dragged down the stocks of gold producers.

Investors drove the price of gold to six-year highs in January as worries about a possible war in Iraq increased and the U.S. dollar weakened.

But Mr. Porter said the "war premium" that investors had priced into gold slipped in February as it appeared that Iraq might be more willing to co-operate with United Nations weapons inspectors and conflict could be delayed.

Investors often put money into gold and gold stocks in times of political turbulence because the sector is seen as a safe haven that does not move in tandem with stock markets and other asset classes.

Mr. Porter said the prices of gold shares tend to swing more dramatically than the price of bullion on the way up and on the way down.

The sector is small compared with the broader market and the rush of people in and out tends to produce big moves in the stocks.

"When people try to get out, it's a narrow door to squeeze through."

But Mr. Porter noted that potential war in Iraq was only one element affecting the price of gold. He believes the category will do well in coming months. Geopolitical tensions in the Middle East and North Korea, and a struggling U.S. economy could push the price of gold higher, he said.

Mr. Porter added that the fundamentals look good for the metal because mining production has fallen off over the last few years.

The portfolio manager said his fund outperformed many of its peers in February because of its emphasis on well-managed companies that do not hedge their production and therefore can benefit from a rising gold price.

February was a lacklustre month for stocks and mutual funds across most categories.

In Toronto, the S&P/TSX composite index slipped 0.04 per cent in February. The bellwether of the U.S. market, the Standard & Poor's 500-stock index, dipped 1.5 per cent in February.

The Nasdaq composite index, which is heavily weighted in technology issues, edged up 1.3 per cent last month.

In the Canadian large-capitalization equity category, funds lost an average of 0.8 per cent in February to bring the one-year loss for the group to 15 per cent.

The $3.4-million RBC Advisor Blue Chip Canadian Equity Fund gained 1.5 per cent, the $12.7-million GGOF Canadian Large Cap Mutual Fund added 1.2 per cent, and the $351.7-million Perigee Canadian Select Equity Fund edged up 0.8 per cent.

Canadian equity funds lost an average of 1.1 per cent last month for a one-year loss of 14.3 per cent.

The $3.6-million First Trust Canadian Leading Companies Growth 2000 Fund increased 1.9 per cent, the $9.8-million Acuity Social Values Canadian Equity Fund rose 1.7 per cent and the $1-billion PH&N Canadian Equity-A Fund added 1.4 per cent.

European equity funds gave up an average of 6.3 per cent in February for a one-year average loss of 29.4 per cent.

The $5.5-million Vision Europe lost 2.4 per cent, the $11.3-million Investors European Growth Class fell 2.5 per cent and the $200,000 Mackenzie Ivy European Capital Class slipped 3.2 per cent.

© 2007 The Globe and Mail. All rights reserved.

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