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Chinese uncertainty rattles gold stocks

Precious metals equity funds fall 16.7 per cent in April

Mutual funds that invest in precious metals stocks were hammered in April as the U.S. dollar strengthened and investors feared that China's torrid pace of economic growth will cool.

Gold and precious metals equity funds dropped an average of 16.7 per cent last month. The group's advance for the 12 months to April 30 now stands at 31.5 per cent.

Among gold funds, the $25-million Millennium Bullion Fund dropped 11.7 per cent, the $216.6-million Mackenzie Universal Precious Metals fund fell 14.4 per cent, and the $334.8-million RBC Precious Metals fund decreased 16.3 per cent.

The $34.8-million BMO Precious Metals fund dipped 16.7 per cent, the $2.7-million Sentry Precious Metals Growth fund decreased 17 per cent, and the $179.5-million Dynamic Canadian Precious Metals fund fell 19.9 per cent.

Robert Cohen of Goodman & Co. Investment Counsel, who manages the Dynamic fund, said some positive economic data in the United States drove the currency up in April, but he still believes the massive current account and budget deficits in that country mean fundamentals for the U.S. dollar are poor.

Mr. Cohen says profits of gold producers are highly leveraged to the price of bullion, which means that stocks can swing dramatically with the price of the metal.

He says shares of companies with big exploration and development programs were particularly hard hit.

Meanwhile, market watchers fear China's growth may slow, which in turn could see that economy's voracious appetite for precious metals weaken, but Mr. Cohen points out that China is still building at a fast pace.

"People are over-emphasizing slowing in China. It's still growing at a tremendous rate."

The manager believes China's infrastructure will continue to expand and that economic growth will continue to drive demand for gold. Gold can perform well in an inflationary environment, he adds.

Mr. Cohen says demand is outpacing supply.

"Fundamental supply/demand for gold is the best we've seen in many decades."

Funds that invest in Canadian stocks also slipped in April, with an average decline of 2.2 per cent. The pullback trimmed the average gain for one year to 25.5 per cent among Canadian equity funds.

Last month, the $292.7-million Mackenzie Ivy Enterprise fund gained 3.1 per cent.

In April, the Canadian stock market's S&P/TSX composite index dropped 4 per cent, and the U.S. market benchmark Standard & Poor's 500-stock index shed 2.1 per cent. The Dow Jones industrial average of blue chip stocks edged down 1.3 per cent, and the technology-laden Nasdaq Stock Market's composite index dipped 4.7 per cent.

Canadian small-capitalization funds fell 2.5 per cent, on average, last month. For one year, funds in the category have posted an average return of 43 per cent.

The $58-million Bissett Microcap-F fund gained 1.2 per cent, the $110.9-million Mawer New Canada fund dipped 0.28 per cent, and the $254.3-million CI Canadian Small Cap fund edged down 0.55 per cent.

Funds that invest in Latin American equities were battered in April, with an average loss in the group of 8.1 per cent.

For one year, funds in the category have jumped 29.7 per cent, on average.

In April, the $6.7-million CIBC Latin American fund decreased 5.6 per cent, the $20.2-million Fidelity Latin-America-A fund dropped 7 per cent, and the $19.9-million TD Latin American Growth fund fell 7.4 per cent.

Funds that invest in health care made the strongest gains in April, with an average return of 4.5 per cent. That brings the group's one-year average gain to 24.7 per cent.

Last month, the $354.2-million CI Global Health Sciences Sector fund advanced 10.9 per cent, the $15.8-million Altamira Biotechnology fund increased 8.9 per cent, and the $11.3-million First Trust Pharmaceutical 2000 fund rose 8.4 per cent.

Science and technology funds lost ground in April with an average shortfall of 2.2 per cent. For one year, funds in the category have jumped 26.1 per cent, on average.

The Tera Capital Global Technology fund added 5.7 per cent, the $31.2-million Desjardins Global Science and Tech fund increased 2.5 per cent, and the $174.1-million TD Entertainment & Communications fund rose 2.5 per cent.

© 2007 The Globe and Mail. All rights reserved.

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