In August the fund rose 4.9%. It would have ended nearly 6% higher but the fund's directors decided to make a prudential write-down of 20% of the African Minerals pre-IPO position (reason: a delay to the IPO/valuation basis) and 30% of the Sibir Energy position (reason: events in Russia leading to its suspension). These will remain under review. In 2004. the fund is down 18.9% after +80% in 2003.

During August we re-focused the fund on South Africa, where (as we reported at the year end) a depreciation of the Rand and a surprise cut in interest rates is leading to a revival. Large positions were taken in Harmony (now 9% of the fund, the biggest stock position we've ever taken), Randgold and Goldfields. Lihir and Anglogold had to move over to make room.

News continued positive. The World Gold Council reported that consumer demand was 11% higher year on year. Gold book hedger Sons of Gwalia (which we've never held) was forced into voluntary administration by concerns over its hedge book commitments (a reminder to other companies not to hedge). Gabriel (one of our largest holdings) attracted the attention of a giant new 10% shareholder: Newmont Mining. We believe corporate activity will be supportive to the sector as the majors try to bid us for our stock in the quality smaller mines we hold.

While the outlook for our sector is brightening, range-bound summer markets are still risk averse. Large cap stocks - in which the fund is underweight - are still outperforming the fund's overweighted small caps. We need a push higher in the gold price (a close above the old highs at $430?) for the fund to roar ahead.

We've positioned the fund not to sleep through a gold price recovery. It's got holdings in pre-IPO stock (eg African Minerals), a much reduced bullion position (only 4% and now only palladium), the highest share weighting it's ever had (96%), an overwhelmingly small-cap emphasis and just under 5% in options and warrant positions.

Asset Allocation (as at 31/8/04)	Top 10 Holdings (49% of fund)
Gold and resource shares: 96%	1. Harmony 9%
	2. Goldfields 7%
Palladium: 4%	3. Randgold 6%
	4. Placer Dome 6%
	5. Mvelaphandra 4%
	6. Palladium Bullion 4%
	7. Northern Orion 4%
	8. Resolute Mining 3%
	9. Gabriel Resources 3%
	10. European Gold Wts 3%
Asset Allocation (per month)