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Executive
Summary: In December, the fund rose by 6.7% making the 2005 advance 25%. Over the past month the FTSE Gold Mines Index advanced by 10.9%, gold bullion rose by 3.5%, silver
rose by 7.6%, platinum was up only 1.6% while palladium was flat. Since
inception over 2 years ago the fund is up by 107%,
with a Compound Annual Growth Rate (CAGR) of 29.3% p.a.
Over the same period gold advanced by 47.6%
or a CAGR of only 14.7%.
In
December, the fund underperformed the FTSE gold mines index but outperformed gold itself. 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 helps the fund in times of rising gold prices. The portfolio remains concentrated with the number of names represented at 42.
Company
News. Ballarat Goldfields of Australia produced its first gold which was well appreciated by the market. Bendigo and Perseverance are likely to benefit from the optimism. Placer Dome is being acquired by Barrick. Michelago has had delays but now will possibly merge with Golden China to create China's largest foreign owned gold producer. In general, the run up in large capitalisation gold shares has sparked some of them to use the higher multiples for acquisitions to replace their dwindling reserves.
Macro
News. Gold has continued its upward movement crossing the 1981 levels. During this rise gold has broken its relationship to the US$ as gold demonstrates the metal's bull market in all major currencies. With the perceived dollar detachment, gold will not be hostage to dollar movements over the medium term.
Outlook.
Government purchasers look likely in 2006 with Russia indicating its intention to double reserves and a general market view that China will be active during the year. The fund has a bias toward smaller value gold companies which are likely to be the take-over target area in 2006.
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