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Precious metals funds feel the gold rush

WHAT ARE WE LOOKING FOR?

Precious metals funds with plenty of glitter lately.

U.S. gold futures have surged since last week, sending the price of the yellow metal over the psychological $1,000-(U.S.)-an-ounce hurdle.

Gold has been helped by a weaker U.S. dollar and by a tailwind from Barrick Gold Corp.'s plan to unwind its hedges as it bets bullion will rise.

Gold for December delivery yesterday rose $9.60 to close at $1,006.40 on the Comex division of the New York Mercantile Exchange.

TODAY'S SEARCH

We checked the month-to-date returns to Sept. 10 for precious metals equity funds. This asset class invests mainly in gold stocks and/or bullion. We also included BMG BullionFund, which invests in gold, silver and platinum bullion. (This fund is in the miscellaneous category.) U.S. dollar and duplicate funds were excluded.

WHAT DID WE TURN UP?

Precious metal stock funds are outpacing bullion.

This contrasts with 2008, when bullion outperformed stocks. Bullion is seen as a safe-haven during uncertain times, while gold stocks do better in normal or bull markets.

Sprott Gold and Precious Metals Fund, which lost 50 per cent last year, is up 13.3 per cent this month to Thursday, and 75 per cent so far this year. The fund was in transition last year as its new managers changed it to an all-capitalization fund from a mainly smaller-company fund.

"A lot of the mid-cap and small-cap names have been the leaders in performance this month," said Charles Oliver, co-manager of Sprott Gold and Precious Metals. "They have the best growth profiles and were some of the companies that got hit the hardest last year.... But big caps have started to move too, recently."

Mr. Oliver said he believes that the recent gold rally is sustainable. "I expect that gold is going well above the $1,000 mark by year-end," he said. "We could have a pullback, but I don't expect a big pullback. Maybe we could test $975 or $950, but I think we are going to see a fairly good gold price in the fall."

He is sticking to his forecast of $2,000 an ounce for gold in two years based on a weak U.S. dollar. "The monetary base doubled over the last year," he said, referring to implications for inflation. "That screams for higher gold prices and a weaker U.S. dollar."

The price of silver has traded at a 55-to-1 ratio to gold over the past 20 to 30 years, he said. Based on that, he has a roughly $40-per-once target on silver in the same time frame.

Sprott Gold Bullion has been lagging its peers this month, gaining 3.1 per cent. The fund has been affected by the strong Canadian dollar versus the U.S. greenback because it is not hedged.

How precious metals funds fared in September so far
(As of Aug. 31)Latest% rtn (Sep 10)Calendar Year % Returns
Name Assets ($-mil)MERMTDYTD20082007200620052004200320022001
Mackenzie Univ Wld Prec Metal Class77.22.5113.853.4-45.07.653.830.1-19.431.464.347.3
Mackenzie Univ Precious Metals363.72.4413.852.5-46.16.649.226.8-20.530.889.744.4
CIBC Precious Metals94.42.4713.844.4-42.06.658.225.3-15.658.067.127.4
IG MK Global Precious Metals Cl-A40.42.6813.550.0
Sprott Gold and Precious Minerals360.02.8413.373.6-49.6-16.456.216.3-18.872.4116.2
Sentry Select Precious Metals Grwth259.52.7513.257.7-37.19.774.035.3-11.324.544.423.6
iShares CDN Gold Sector Index1041.00.5512.110.21.0-4.540.821.7-8.913.842.8
Sentry Select Mining Opportunity Cl23.52.8811.497.9-69.810.0
AGF Precious Metal489.92.5811.444.9-36.46.763.919.4-7.964.5103.824.4
TD Precious Metals211.52.1511.244.2-33.44.649.426.8-15.130.774.327.7
RBC Global Precious Metals710.32.0410.942.1-26.29.052.425.3-17.365.2153.134.4
Altamira Precious & Strategic Metal51.22.3510.838.5-29.4-2.442.713.1-12.667.183.319.0
BMO Precious Metals69.22.3110.546.8-40.83.346.824.8-19.22.485.135.9
Dynamic Precious Metals559.22.6910.347.4-27.65.662.726.3-24.452.381.742.0
Middlefield Precious Metals Class1.12.479.919.3
Claymore S&P/TSX Global Mining ETF34.80.599.140.3-38.8
BMG BullionFund-A*257.43.315.612.7-4.12.524.512.5-4.0-2.8
Dynamic Strategic Gold Class**2.3 n/a4.33.9
Sprott Gold Bullion Fd-A**37.8 n/a3.1-6.4
MSCI World ($ Cdn)-26.1-7.120.66.67.39.4-20.2-11.4
S&P 500 Composite ($ Cdn)-23.8-12.213.6-0.21.53.4-24.0-7.7
S&P/TSX Composite Index2.624.1-35.07.214.521.912.524.3-14.0-13.9
S&P/TSX Total Return2.727.0-33.09.817.324.114.526.7-12.4-12.6
*Includes gold, silver and platinum bullion and falls under miscellaneous category; ** Since inception this year
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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