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Sagging stocks add sheen to gold, precious metal funds


Precious metals funds have glittered against the backdrop of choppy stock markets.

This group is the best performer among all Canadian funds so far this year. And the iShares Canadian Gold Sector Index exchanged-traded fund was the leader as of the end of Monday, up nearly 22 per cent.

Gold recently surged past $900 (U.S.) an ounce as investors sought a safe haven amid concerns about the weak U.S. dollar and a slowing economy, rising oil prices and fears of inflation. The yellow metal yesterday fell 80 cents to close at $902.60 in New York.

"The best way to protect your purchasing power is to have hard assets, and gold is one of them," Benoît Gervais, a portfolio manager with Mackenzie Financial Corp., said yesterday.

"We have a window where gold is doing better, and is acting as a diversifier in portfolios," said the co-manager of the Mackenzie Universal Previous Metals and World Precious Metals funds.

Mr. Gervais, who expects the price of gold to hit $1,000 over the next 12 to 18 months, said that bullion has entered into one of those windows where its price has a inverse correlation to other assets like stocks.

"We don't see that window closing for six to 12 months until the [U.S.] economy fixes itself," Mr. Gervais said. "There is fear of inflation with how money is being put into the system [by central banks to deal with the subprime mortgage mess].

Gold is doing what it should do in providing a haven in tough times," he said. "We don't see a rosy period reappearing for a little while. Gold should be an anchor in a portfolio - about 15 per cent."

But independent fund analyst Dan Hallett said he favours a broader exposure to hard assets as opposed to a gold or precious metal fund.

"People tend to screw up with precious metals funds," he said. "By the time people are comfortable to jump in, they have missed a lot of the upside. Once the volatility hits on the downside, that often will scare people away. Over all, they end up making no money because they are not in a fund long enough ....

"I would urge people to maybe buy a resource fund, which is more broad-based than strictly precious metals" funds, if they want exposure to gold, Mr. Hallett said.

Top performing mutual funds

Precious metal funds, which are largely focused on gold stocks, have enjoyed the best returns so far this year, (minimum $50-million in assets).

30-day changeYear-to-date change
iShares Cdn. gold sector index 25.42%21.56%
TD Precious Metals 18.67%14.26%
Sentry Select Precious Metals Growth 21.00%13.57%
Mackenzie Univ Precious Metals 16.51%12.49%
RBC Global Precious Metals 16.26%12.40%
AGF Precious Metal 13.84%10.65%
iShares Cdn. materials sector index 16.36%9.91%
Dynamic Precious Metals 15.06%9.32%
Sprott Gold and Precious Minerals 12.47%9.30%
Sentry Select Cdn. Resource Class 13.36%7.81%


© 2007 The Globe and Mail. All rights reserved.

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