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Worry about rising rates, possible economic slowdown, tarnish gold

Precious metals equity funds fall in June

Jitters about rising interest rates and a possible economic slowdown saw speculative money flowing out of gold last month, pushing down the stock prices of many gold producers.

Equity funds that invest in gold and precious metals slipped an average 4.9 per cent in June to trim their gain for the 12 months ended June 30 to an average 23.8 per cent.

Among the top performers in June, the recently-launched BDC Gold Bullion Securities S1 Fund slipped 0.6 per cent, the $34.8-million Dynamic Global Precious Metals Fund edged down 2.8 per cent, and the $336.5-million RBC Precious Metals Fund dipped 3.8 per cent.

The $207.2-million AGF Precious Metal Fund dropped 3.8 per cent, the $370.9-million iUnits S&P/TSX Capped Gold Fund fell 4.4 per cent, and the $212.8-million Mackenzie Universal Precious Metals Fund dropped 5.5 per cent.

Frederick Sturm, chief investment strategist at Mackenzie Financial Corp. and manager of the Mackenzie Universal Precious Metals Fund, said it appears that speculative investors who had pumped money into gold pulled some out as a pre-emptive move against rising interest rates.

On June 30, the U.S. Federal Reserve Board raised its key short-term rate for the first time in four years.

Mr. Sturm said that, historically, rising interest rates have not been considered good for gold because opportunity costs increase over time.

But Mr. Sturm believes the market has digested the "measured" increases the Fed is likely to usher in, and he thinks the outlook for gold is strong.

"We believe that [real] interest rates are still low enough to provide a positive environment for gold."

Mr. Sturm says he expects the gold supply to become tighter as some producers close down uneconomic mines. He also believes speculative money will reappear as geopolitical unrest continues, given that gold is considered a safe haven .

"We think this creates a very interesting juncture to commit money to gold producers."

The strategist believes the price of gold could range between $350 (U.S.) and $460 an ounce in the next few years, then soar higher later in the decade. Gold ended the day up $3.40 at $405.40 in New York yesterday.

Mr. Sturm favours shares of senior producers that already have mines in production.

"Discovery of gold next to where you already have it and have facilities is the most lucrative discovery you can make."

Canadian equity funds posted modest gains last month as a group.

In Canada, the S&P/TSX composite index had a total return of 1.7 per cent in June. The U.S. bellwether Standard & Poor's 500-stock index rose 1.9 per cent, and the Dow Jones industrial average of blue-chip stocks advanced 2.5 per cent.

The technology-laden Nasdaq Stock Market composite index posted a 3.1-per-cent gain.

In June, Canadian equity funds edged up 1.1 per cent, on average. The group's average one-year gain is 22 per cent.

Last month the $4.3-million (Canadian) Mavrix Growth Fund gained 5 per cent, the $2.7-million Clarica Summit Canadian Equity A Fund rose 4.6 per cent, and the $517.2-million Clarica Canadian Blue Chip Fund increased 4 per cent.

Funds that invest in science and technology stocks eked out a 0.7-per-cent rise last month. For one year, the group has gained 23.4 per cent.

The $145.9-million iUnits S&P/TSX Capped IT Fund jumped 12.6 per cent, the Tera Capital Global Technology Fund swelled 9.6 per cent, and the $36.6-million Northwest Specialty Innovations Fund rose 4.8 per cent.

Japanese equity funds posted the strongest returns in June, with an average gain of 4.1 per cent. The group's average one-year advance is an eye-popping 48 per cent.

The $22.1-million Mackenzie Select Managers Japan Capital Class Fund gained 7.9 per last month and the $15.7-million AGF Aggressive Japan Class Fund rose 6 per cent.

Category Performance

Returns as of June 30, 2004

..................................................Returns

Fund...................................1-month.......1 year.

Alternative strategies..................0.2%.........8.7%

Asia ex-Japan equity..................- 3.4..........19.9

Asian/Pacific Rim eq.................- 0.83......... 0.6

Canadian balanced....................0.4.............12.5

Canadian bond..........................- 0.3...........2.6

Canadian dividend.....................0.9.............15.7

Canadian equity.........................1.1...........21.9

Cdn. equity (Pure).....................1.5.............24.4

Cdn. income trusts.....................2.7.............19.2

Cdn. money market...................0.1...............1.6

Canadian mortgage....................0.1...............2.0

Cdn. short-term bond...............- 0.2...............1.9

Cdn. small-to-mid-cap eq.............1.0..............33.9

Cdn. tactical asset alloc..............0.6..............13.0

Emerging mkts. Equity............ - 0.9..............28.0

European equity.....................-0.0...............25.0

Financial services....................0.6................20.3

Foreign bond.......................- 1.3.................1.1

Global bal./asset alloc............. - 0.1...............4.6

Global equity......................0.3....................1.3

Health care.......................-1.8...................13.5

High-yield bond....................0.7....................7.6

International equity................0.3...................26.9

Japanese equity...................4.1...................48.0

Labour-sponsored.................- 0.9...............- 3.6

Latin American equity...........2.4....................30.4

Natural resources................1.4....................36.5

North American equity..........1.1....................18.1

Precious metals...................- 4.9.................23.8

Real estate........................1.4...................17.2

Science & technology............0.7..................23.4

Specialty/miscel...................0.0..................12.9

U.S. equity.........................0.4..................15.2

U.S. money market...............0.0...................0.2

U.S. small-to-mid-cap eq........1.2...................23.4 -

SOURCE: GLOBE HYSALES

© 2007 The Globe and Mail. All rights reserved.

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