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Executive
Summary: In October, the fund fell by 8.16% which followed
a +28.7% advance in the most recent quarter. Over the past month the FTSE Gold
Mines Index fell by 7.7%, gold bullion fell by 0.5% (and then fell 2.5% on the 1st November), silver
rose by 3% and palladium rose by a full 17%. Since
inception over 2 years ago the fund is up by 76.7%,
with a Compound Annual Growth Rate (CAGR) of 23.8% p.a.
Over the same period gold advanced by 33.7%
or a CAGR of only 11.5%.
In
October, the fund underperformed the FTSE gold mines index by about 0.5%. The gold mines index continues to be volatile and geared to the gold price. The fund has a large weighting in mid-cap stocks which are more geared to gold than the large capitalisation stocks which hurts the fund during gold price declines but this was offset by value added in specific company selections. The portfolio remains concentrated with the number of names represented at 46.
Company
News. Gold companies had a difficult month partly due to some unfavourable earnings announcements by companies not held in the portfolio. Placer Dome was jointly bid for by Barrick and Goldcorp. Climax Mining received its development permit for its Dinkidi gold and copper project in the Philippines. DRD South Africa has restructured its assets including a 6% holding by staff to fulfill black empowerment legislation. Buenaventura announced that production would fall by over 10% at is main Yanachoca mine next year.
Macro
News. Gold and silver were volatile during the month following the strong advance in September. The US$ continues to be strong on inflows from foreign investors. The currency is benefiting from a positive growth rate differential and interest rate advantage when compared to Europe. The appointment of Ben Bernanke as Federal Reserve Chairman after Alan Greenspan is viewed as positive for gold since Bernanke is viewed as being less stringent on inflation control.
Outlook.
Most commentators view gold as in an attractive position. A combination of strong dollar, renewed inflation fears and no relaxing in global tension set the stage for strong gold prices. There could be more volatility as Christmas approaches and the debt burdened consumer needs to balance gift purchases with credit card payments.
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