In
December, the Fund fell by 9.2% (the FTSE Gold Mines Index
was -7.2%, gold -3.1%, silver -12.1% and palladium -12.4%).
In 2004, the fund fell 7.7% after a rise of +80% in 2003.
We are not going to crow about the fund's long-term relative
performance against the index, as we know that the objective
is to make money for our investors and we know that if
the fund had been more heavily invested in physical gold
or oil shares or uranium shares we would have had a much
better year. But investors may take some small satisfaction
that as a result of this down year, we have missed out
on performance fees and shall have to work even harder
this year to make money for them and therefore ourselves.
The sector is still undergoing a correction owing to the
rise in the USD and some unwinding of metals long positions
in the futures markets, reportedly from hedge funds. Since
the July 04 lows, the fund had risen over 30% without
a single month of correction. A correction was overdue.
We remind our investors that institutional weightings
in gold, mining and resource shares remain way below the
averages of the '80s and '90's. The fund is positioned
to provide leverage to 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),
one of the highest share weightings it's ever had (96%),
an overwhelmingly small to medium- cap emphasis ( a negative
feature for the fund in 2004) and just under 5% in options
and warrants positions.
In
December, we added to Apollo Gold, Coeur d'Alene and
Strata Gold. At the same time we exited from Goldfields,
the subject of a hostile bid from Harmony, which we
also sold. As we believe the bull market in gold is
still early stage, the fund maintains a high exposure
to smaller companies with high operational gearing to
the gold/metals prices. Baker Steel are experts in this
area and that is why we have chosen them as advisers.
This
correction has happened against a very positive news
flow, which makes us think that the sell-off we are
seeing is largely USD related and therefore temporary/technical.
The Bundesbank said it would only sell 7% (8T of gold
coins) of the amount allowed (120T) under a European
accord in spite of the need to sell gold to ease the
budget deficit strain. European Central Bank 2005 sales
are likely to be less than market expectations. GFMS
forecasts that mine supply will fall by an average 30T
pa from 2005-2010, despite higher gold prices.
News
of our holdings was also positive and corporate activity
remains high. Apart from the Goldfields/Harmony tussle
(where Goldfields shareholders voted down the IAM Gold
merger), Goldcorp announced plans to buy Wheaton River
in an all share swap. Glamis then bid for Goldcorp,
conditional on the Wheaton deal not proceeding. Ivanhoe
- the biggest holding in our fund - announced a 'large'
gold and copper deposit in Mongolia, some 140km from
its Oyu Tolgoi project. Bendigo boosted its resource
by 11mn oz. IMA Exploration increased its silver resource
at Navidad in Argentina by 61mn oz to over 300mn oz.
Coeur d'Alene decided to proceed with the San Bartolome
silver mine in Bolivia.
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