U.S. mutual funds that invest in shares of gold mining companies outperformed all other sector categories in 2001, bolstering a long-standing belief that investor portfolios are more stable when a gold component is included.
In a year in which the average mutual fund declined 10.6%, and some sector funds, such as science and technology, dropped an average 37.5%, gold-oriented funds increased 18.3%, according to Lipper, a London-based firm that tracks mutual funds.
The gain is attributed, in large part, to investors seeking a safe haven during a recession and uncertainty surrounding terrorist attacks against the U.S.
The long-term record of gold-oriented funds is not that good, according to Andrew Clark, a research analyst with Lipper.
“Gold-oriented funds did very well in 2001, considering they have been in a downtrend,” says Clark. The annualized return over five years amounts to a 12% loss and a 4% loss over 10 years. There are 39 gold funds tracked by Lipper, compared with 34 in 2000 and 24 five years ago. Sector sales are about $1.8 billion, compared with $2.4 trillion for all types of diversified stock funds.
Several additional factors moved fund prices higher, including: an increase in gold bullion prices; a devaluation of the South Africa’s rand; and a flurry of mergers and acquisitions. For example, First Eagle SoGen Gold Fund, the best-performing gold fund (up 37.31% for 2001), attributed its performance to large holdings in Homestake, which was acquired by Barrick Gold. Homestake shareholders saw a 30% rise in the price of the company’s stock.
Fund managers are optimistic about 2002 gold prices, citing low interest rates, almost zero after Fed rate cuts, which are usually bullish for gold.
In addition, if inflation increases, which is possible in light of a pending economic stimulus package, a higher gold price will also be favoured.
— The preceding is from an information bulletin published by the Washington, D.C.-based Gold Institute.
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