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Executive
Summary: In June, the Fund rose by 5.9% (the FTSE
Gold Mines Index was +10.2%, gold+4.6%, silver -5.6%
and palladium -0.6%). In 2004, the fund was down 7.7%
after a rise of +80% in 2003. Since inception over 2
years ago the fund is up by 44.5%, with a Compound Annual
Growth Rate (CAGR) of 17.9% p.a. Last month saw the
gold price advancing in almost all currencies causing
some commentators to forecast the start of a gold bull
market. We remind our investors of the key reasons for
holding the fund:
1.
Institutional weightings in gold, mining and resource
shares are way below the averages of the '70s, '80's
and '90's. Gold and natural resources are in a generational
bull market. Few analysts understand the epochal implications
of the emergence of China, India etc on global commodity
demand, less still can they 'model' the probable course
based on historical data.
2.
The fund is highly leveraged to a gold price and commodities
recovery.
3.
The fund has the unique feature of being able to hold
physical bullion as well as shares up to 100% of fund
value.
4.
It is the policy of the fund to have the leading specialist
commodity advisers in the world advising on the fund's
investments.
5.
The fund is a 'whole of cycle' fund. In the latter stages
of a commodity bull cycle, shares will have discounted
all the good news and it's safer and more profitable
to hold physical bullion and higher levels of cash.
But not yet.
In
June , we continued to reduce the number of names
with a decline from 61 to 59.
Company
News. DRD (old Durban Deep) continued to be in the
news. It has concluded its equity raising which was
underwritten by our fund's advisers, Baker Steel. The
stock was depressed during the month by a new class
action suit against the Executives of the company but
the fundamentals have improved with the advancing of
the gold price in Rand terms.
Macro
News. US Dollar strength with Euro weakness has
traditionally been a difficult market for gold when
expressed in dollars. In effect, gold acts as a combination
of a currency and a metal. The recent gold price rise
in all currencies shows the underlying fundamental strength
of the metal. Gold mine production continues to decline
despite total demand being above production levels.
Demand is strong from both fabrication, dominated by
jewelry, and from investment. Central bank selling,
which has been a negative factor in the past, is now
stable with further short term optimism from the announcement
that IMF debt relief would exclude gold.
The
Outlook. Gold prices short term should be helped
by the comment from Pierre Lassonde, President of Newmont
Mining, the world's largest gold producer, that he thinks
the combination of strong physical demand and a weaker
dollar will see gold hit $525/oz by January 2006. As
long as real interest rates remain low, investors are
more willing to seek commodity capital gains in metals
and especially gold. Although inflation remains low
by historic standards, the investor tolerance for inflation
has also lowered meaning that movements toward real
assets occur at lower levels of absolute inflation.
The fund is particularly well positioned to take advantage
of metal price rises with its concentration in value
based intermediate producers who generally outperform
in the early stages of metal price rises.
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