Gold''s hero Embry pushes Sprott mutual fund to the top in Canada

Gold Funds Show the Midas Touch

By Jane J. Kim
Dow Jones Newswires
The Wall Street Journal
Thursday, September 18, 2003

Richard Burns caught the gold bug last week.

The price of gold hit a seven-year high of $382.25 an
ounce, after coming tantalizingly close in February. So
he went out and bought shares in two gold-mining
companies.

quot;I've been interested in goldquot; for years, says the
New York money manager. But now, quot;a lot of factors
have come together.quot;

Mr. Burns isn't alone.

Gold funds were the best-performing fund sector in
August, according to fund tracker Lipper Inc. It is a
notable run-up for an investment that has had pretty
lousy long-term returns. The average annualized
10-year return for gold funds is only about 1.3%
through the end of August, according to Lipper.
And the price of gold itself is notoriously volatile:
Though it has bounced back from a low of $321 an
ounce earlier this year, it is still well below its peak
of $850 an ounce in January 1980. (Wednesday it
closed at $375.70.)

But because investors typically turn to gold as a
haven, it tends to move up as stocks move down.
Amid fears of terrorism, inflation, growing U.S. deficits
and a sagging dollar, gold has been gaining legs. In
2002, the gold and precious metals group outpaced
every fund category, with a gain of 63%, compared
with a drop of 22.1% for the Standard amp; Poor's 500
stock index, according to Morningstar.

quot;It's like an insurance policy,quot; said John Hathaway,
manager of Tocqueville Gold mutual fund, which was
up 22.8% on a year-to-date basis through the end of
August. quot;People go into gold because something
else isn't working.quot;

Now, even given the run-up, experts say there are
encouraging signs that could continue to support gold.

A weaker U.S. dollar, rising gold prices in the face of
higher equities and strong jewelry purchases from East
Asia -- typically the growth engines for gold -- could help
push the price of gold over $400 an ounce, says Bill
Martin, manager of American Century Global Gold Fund.

To be sure, investing in gold is not for the faint of heart: It
is risky, volatile, and best in small doses. But many
investment advisers say keeping a sliver of gold and
other precious metals in your portfolio -- typically less
than 10% of all your assets -- can diversify your stock
and bond holdings.

There are several ways investors can play gold. One
is to buy gold coins or bars, typically through bullion
dealers that sell bullion online or over the telephone.
But buying gold bullion is usually impractical for most
investors, given the storage and transportation costs.

You can also invest in companies that mine gold.
Because of the way mining companies' costs are
structured, they can receive a big boost from a rise
in gold. If the average cost for a company to produce
an ounce of gold is, say, $270, then its operating
profit margins are $30 when the price of gold is at
$300. A jump in gold to $330 would double those
margins. Conversely, a drop in gold prices can
cause the price of companies to fall.

Of course gold-mining firms are subject to risks, like
turmoil in the nations they mine in, such as South Africa.
Plus some companies may be hedged -- essentially
selling future production at current prices -- which means
that even if gold prices soar, shares of those
gold-mining companies may actually fall.

Buying shares in funds that invest in gold-mining stocks
will give you more diversification. But do your homework:
Because the sector is considered a specialty category,
fund fees are typically high -- some as high as 3.57% --
and average around 1.87%, compared with average
annual expenses of 1.45% for a midcap blend fund,
according to Morningstar.

You can also bet on gold-price movements through
futures and options, though this is usually too expensive
and complicated for most individual investors.

If a new gold-based mutual fund is approved this fall,
investors could trade gold like a stock. The World
Gold Council, a London trade group representing the
world's major gold producers, has filed with the
Securities and Exchange Commission to create an
exchange-traded fund that would trade on the New
York Stock Exchange. The fund, called Equity Gold
Trust, would buy gold bullion and issue shares
representing a fractional interest in the gold.

Of course, adding gold makes sense only if you are
diligent about rebalancing your portfolio. Given the r
un-up in price, if you haven't sold off some of your
investments, there is a chance that gold now makes
up a larger part of your portfolio than you'd like it to --
leaving you more vulnerable to losses if the price of
gold suddenly falls.

quot;There's a place for gold in a portfolio ... but most
people need to be careful about chasing
performance,quot; said Lynn Russell, a mutual-fund
analyst at Morningstar.

Still, other planners say gold is just too risky for most
investors and that there are other assets -- such as a
diversified commodities fund -- that do a better job of
providing diversification and higher returns.

quot;You often hear [gold] is a financial hedge,quot; said
Harold Evensky, a planner in Coral Gables, Fla.
quot;It's a disaster hedge.quot;

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----------------------------------------------------

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