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Precious metals funds are golden

Enjoy 15.5% advance in August on gold's price rise; most fund categories gain

The rising price of gold helped push equity funds that invest in precious metals to a strong average advance of 15.5 per cent in August.

While precious metals funds posted the strongest showing, mutual funds across most categories gained ground last month as stock markets continued to climb.

August's run helped push precious metals funds to an average gain of 31.2 per cent for the 12 months to Aug. 31.

Among top performers last month, the $169.8-million Sprott Gold and Precious Minerals fund surged 27 per cent, the $328.8-million RBC Precious Metals fund gained 22.5 per cent, and the $8.6-million StrategicNova World Precious Metals fund rose 21 per cent.

The $187.8-million Dynamic Canadian Precious Metals fund increased 20.4 per cent, the $152.2-million AGF Precious Metal fund advanced 18 per cent, and the $24.6-million Dynamic Global Precious Metals fund rose 18 per cent.

Much of gold's strength in the past year has been fuelled by a weakening U.S. dollar. A decline in the greenback makes gold, which is sold in U.S. dollars, more affordable for foreign buyers.

John Embry, president of Sprott Asset Management Inc. and manager of the Sprott gold fund, points out, however, that the rise of gold is no longer just a U.S. dollar story. The price of bullion has jumped against other currencies as well.

He says a wave of "excessive global money creation," as countries allow their currencies to weaken in line with the greenback, is very constructive for gold.

"What you've got is a global currency debasement." As the value of money goes down, the price of gold rises, he explains.

Mr. Embry, who took the helm of the Sprott fund in March, says it took a few months for him to get it positioned to his liking. The manager favours companies with large ore bodies and good leverage to a rising gold price.

That strategy paid off in August, he said, with the help of a good performance by many junior producers. "It was a month in which a lot of those came to life."

August was also a strong month for funds that invest in equities in Japan. Japanese equity funds posted an average advance of 9.4 per cent to bring them just about flat for the year to Aug. 31, with a 0.7-per-cent dip.

The $6-million Mackenzie Universal Select Managers Japan Capital Class fund gained 13.4 per cent, the $2.1-million Fidelity Japan Class fund rose 12 per cent, and the $101-million Fidelity Japan-A fund added 12 per cent.

Funds in the natural resources category received a boost from the runup in the prices of gold and other metals. Lumber prices rose also sharply and oil prices gained modestly in August.

Funds in the group gained an average of 8.5 per cent last month. The one-year gain for natural resources funds now stands at 20.2 per cent.

The $8.6-million Dynamic Global Resource fund jumped 21 per cent, the $4.1-million Mavrix Explorer fund gained 13.2 per cent, and the $21.8-million TDK Resource Fund Inc. fund advanced 12.8 per cent.

Canadian equity funds rose an average of 2.8 per cent in August. The benchmark S&P/TSX composite index gained 3.5 per cent in the same period.

Among the leaders, the $15.3-million Acuity All Cap 30 Canadian Equity fund gained 15.6 per cent, the $37.6-million Acuity Canadian Equity fund rose 13.5 per cent, and the $323,000 University Avenue Canadian fund added 11.1 per cent.

Equity markets in Asia and the Pacific Rim posted strong performances in August, and funds that invest in the region gained 7.4 per cent, on average, as a result. Funds in the group have slipped an average of 0.07 per cent for the one-year period ended Aug. 30.

Last month, the Investors Pan Asian Growth Class-B fund rose 21.8 per cent, the $62.6-million AIM Indo-Pacific fund increased 8.8 per cent, and the $18.3-million CI Pacific Sector Shares fund gained 8.7 per cent.

Canadian small-capitalization funds rose an average 4.8 per cent in August, to bring their gain for one year to 12.4 per cent.

The $3.4-million Dynamic Quebec fund jumped 13.7 per cent, the $10.7-million Front Street Small Cap Canadian fund added 13.1 per cent, and the $123.1-million Dynamic Power Small Cap fund increased 12.7 per cent.

© 2007 The Globe and Mail. All rights reserved.

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