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Gold puts a shine on precious metals funds

INVESTMENT FUNDS REPORTER

Precious metals equity funds glittered in February, propelled by a recovery in the price of gold that lost some of its shine a month earlier.

Gold futures for April delivery closed last Friday at $1,118.90 (U.S.) an ounce on the New York Mercantile Exchange. That's up from $1,083 per ounce at the end of January, but off record highs of over $1,200 in early December.

Precious metals equity funds gained an average of 6.1 per cent last month, according to preliminary figures released yesterday from Globe Investor. Canadian equity and natural resource equity funds, were up an average of 4.4 per cent and 4 per cent, respectively.

In precious metals, Dynamic Precious Metals jumped 9.9 per cent; Altamira Precious & Strategic Metal, 9.7 per cent, and Sentry Select Precious Metals Growth, 9.6 per cent.

Robert Cohen, manager of Dynamic Precious Metals, said his fund benefited from a recovery in the gold price, and strong performance of firms with good exploration results.

For instance, African gold producer, Red Back Mining Inc., a Top 10 holding, gained about 26 per cent.

The gold price has been bouncing around, but "I don't look at these $10-to-$20 movements in bullion as anything significant," he said. "I just look at the longer trend. We see it [the price of gold] still rising approximately $100 a year."

Gold bullion could average around $1,170 per ounce this year, and reach $1,230 by year end, he suggested.

The monetary role of gold to back foreign exchange reserves is coming back as central banks have become buyers rather than sellers, he said.

India's 200 tonne-purchase of gold from the International Monetary Fund last November gave "some extra buoyancy to the gold price," he said. "Now, the question remains about the IMF's [sale of the] last 190 tonnes ... Whether it is a one-off purchase, or pieced out to several central banks, we will see that likely to occur."

G7 countries have 40 to 70 per cent of their foreign-exchange reserves backed by gold, but it's only about 1.5 per cent for China and other Asian countries, he said.

***

Best and worst fund categories in February

Group Avg. Group Avg.
TOP 5 1mo. Rtrn YTD
Precious Metals Equity6.1%-1.3%
Canadian Equity4.4%-0.8%
Natural Resources Equity4.0%1.7%
Canadian Small or Mid Cap Equity3.7%1.8%
Canadian Income Trust Equity3.6%3.6%
BOTTOM 5
European Equity-2.6%-5.8%
International Equity-1.7%-4.8%
Cdn Inflation Protected Fixed Income-1.2%0.0%
Japanese Equity-1.1%1.8%
Asia Pacific ex-Japan Equity-0.6%-5.5%
Avg. for all fund asset classes 1.4% -0.7%
S&P 500 Composite2.9%-1.0%
S&P/TSX Small Cap4.2%1.0%
S&P/TSX Total Return5.0%-0.6%
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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