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Executive
Summary: In August, the fund rose by 1.66% following
a 3.4% rise in July. Over the past month the FTSE Gold
Mines Index rose by 4.7%, gold rose by 1.2%, silver
declined by 5.1% and palladium declined by 5.4%). Since
inception over 2 years ago the fund is up by 57.6%,
with a Compound Annual Growth Rate (CAGR) of 20.7% p.a.
Over the last two months gold has advanced by 0.07%
while the fund advanced by 5.3%.
In
August, the fund advanced roughly in line with the
gold price but has significantly outperformed gold over
the last two months. The gold mines index was quite
volatile during the month with most of the move concentrated
in the largest capitalisation stocks. The fund has a
large weighting in mid-cap stocks which have company
specific research based reasons for inclusion in the
portfolio. The portfolio remains concentrated with the
number of names at 50.
Company
News. DRD, a major holding, was a solid performer
during the month as the market gained confidence in
the turnaround story. The company benefits by being
outside the Chamber of Mines wage negotiation in South
Africa and hence avoided the large strike. European
Goldfields gained approval for its mining plant at Stratoni
which was well received by the market. Climax Mining
will start construction of its Didipio project next
year after receiving permission from the Philippine
authorities.
Macro
News. The widely watched Gold/Oil ratio made a new
low in August as oil climbed on both longer term economic
factors and shorter term storm related disruptions.
It now takes only 7 barrels of oil to buy one ounce
of gold compared to the long run average of 15 barrels.
The major macro news most recently has been hurrican/New
Orleans related. The final cost of the disaster in the
south of the US will be well over $100 billion with
the regional affect lasting for years. Although the
short term affect is obviously negative with widespread
destruction in the medium term there will be a construction
boost both in the immediate area and wider spread as
localities improve their storm defences. The FED is
not overly concerned as can be judged by their willingness
to raise interest rates further.
Outlook.
Belgium's sale of 30 tonnes of gold in August taking
them to the maximum allowed under the Central Bank Gold
Agreement means that it is unlikely any sales will take
place in September. Seaonally Gold should do well with
Indian purchases strong ahead of Diwali and Moslem purchases
for Eid at the end of Ramadan in very early November.
There might be some trade selling from positions taken
in advance of the seasonal demand. The dollar movement
is unusually hard to determine in the short term as
analysis focuses on the conflicting political statement
on the aftermath of Katrina.
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