Precious-Metals Funds Rebound

Even the worst-performing funds in the sector made money on the week.

By Kevin Baker May 10, 2008

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As gold rebounded 3.4% to about $880 from last week's low around $853 per ounce, even the worst-performing funds focused on the precious-metals markets made money for their shareholders.

The average precious-metals fund we track gained 7.21% for the five trading days ending Thursday, May 8. Meanwhile, the benchmark Philadelphia Gold & Silver Index moved up 9.54%.

The best-performing funds in this sector are the mining shares that tend to move up or down two to three times as much as the underlying metal. The companies are benefiting from the double whammy of a potential turning point in the price of gold and optimistic earnings reports.

The reports reminded investors that even at current prices, the comparatively lower cash cost for most miners to produce gold allows them to be profitable.

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Higher gold prices are just icing on the cake.

The ProFunds Precious Metals UltraSector ProFund (PMPIX), leveraged 150% to the Dow Jones Precious Metals Index, rose 14.03% for the period under review, topping our best-performing list.

The fund is heavily weighted to a few of the mining companies with 23.0% Barrick Gold (ABX), 22.3% Freeport-McMoRan Copper & Gold (FCX), 16.5% Goldcorp (GG) and 11.9% Newmont Mining (NEM).

Barrick beat earnings estimates this week, flipping a loss in the same quarter last year to a profit of $514 million this year. It did that on the back of 80% higher sales of $1.96 billion.

Over the last year, Barrick's cash cost of gold was restricted to $350. The world's largest gold producer also reported the end of sales contracts at below market prices.

Goldcorp reported $1.2 billion in cash with no debt, and is building its own 200-megawatt power plant in Mexico to control costs and maintain a reliable supply of electricity. The recent power shortage experience by Freeport-McMoRan in the Democratic Republic of Congo after its power-line cable to the electric company was stolen serves as a cautionary tale for other heavy electric users.

Another mining company reporting a blowout first quarter was Newmont, which quintupled last year's first quarter on 59% higher sales of $1.94 billion. The company was able to shrink its production cost for an ounce of gold by 2.2% to $396 although costs are expected to inflate by 11% over the next year.

The second-place SPDR Metals & Mining ETF (XME) finished the period 11.14% higher than where it started.

Up 17.58%, fund holding Cleveland-Cliffs (CLF) predicted record prices in 2008 for the iron-ore pellets it produces. Another holding, Titanium Metals (TIE), soared 16.99% on strong demand for titanium from Boeing (BA) and Airbus SAS (EADSY).

The OCM Mutual Fund - OCM Gold Fund (OCMGX) popped 9.23% this week by investing in 67.2% Canadian, 18.9% U.S., 5.3% South African and 2.5% Australian mining shares.

Motherlode jumps like 25.18% from shares in Geologix Explorations (GXEXF), 23.91% from Hana Mining and 23.71% from Red Back Mining (RBIFF) help explain the fund's winning week.

On May 7, Geologix announced discoveries of high grade mineralization in Liscay, Peru; the next day Hana Mining did the same in Botswana. These were preceded by Red Back's report of debt free, un-hedged, first-quarter profits from its mines in Ghana and Mauritania.

Best-Performing Precious Metals Funds for the Week Ending Thursday May 8
Fund	Ticker	Rating	Fund Type	1 Week Total Return
ProFunds Precious Metals UltraSector ProFund	PMPIX	C-	Open-End	14.03%
SPDR S&P Metals & Mining ETF	XME	B	ETF	11.14%
OCM Mutual Fund - OCM Gold Fund	OCMGX	C+	Open-End	9.23%
American Century Global Gold Fund	BGEIX	B-	Open-End	8.36%
DWS Gold & Precious Metals Fund	SCGDX	C	Open-End	8.32%
USAA Precious Metals and Minerals Fund	USAGX	B	Open-End	8.32%
Market Vectors Gold Miners ETF	GDX	B+	ETF	8.04%
Franklin Gold and Precious Metals Fund	FKRCX	B-	Open-End	7.95%
RiverSource Precious Metals and Mining Fund	INPMX	C-	Open-End	7.85%
Fidelity Select Gold Portfolio	FSAGX	B+	Open-End	7.79%
Source: Bloomberg & TheStreet.com Ratings

The worst performers this week are led by the exchange-traded funds that directly track the price of gold by owning vaults full of gold bars. The A+ rated Streettracks Gold Trust (GLD) gained back 3.87% for the week.

Similarly, the C+ rated iShares Silver Trust (SLV), tracking silver bullion, recovered 4.41%.

Worst Performing Precious Metals Funds for the Week Ending Thursday May 8
Fund	Ticker	Rating	Fund Type	1 Week Total Return
Streettracks Gold Trust	GLD	A+	ETF	3.87%
iShares COMEX Gold Trust	IAU	A+	ETF	4.09%
PowerShares DB Gold Fund	DGL	A+	ETF	4.16%
iShares Silver Trust	SLV	C+	ETF	4.41%
Tocqueville Gold Fund\The	TGLDX	C+	Open-End	5.17%
ELEMENTS Linked to the MLCX Precious Metals Index	PMY	U	ETF	5.21%
First Eagle Gold Fund	SGGDX	C+	Open-End	5.77%
US Global Investors Gold and Precious Metals Fund	USERX	B	Open-End	6.19%
US Global Investors World Precious Minerals Fund	UNWPX	C+	Open-End	6.21%
ING Global Natural Resources Fund	LEXMX	B	Open-End	6.63%
Source: Bloomberg & TheStreet.com Ratings

The Dollar Index, which values the U.S. dollar against a basket of major currencies, stagnated this week to end the late April rally.

As the dollar reverts back to the major downward trend that has seen one positive quarter since December 2005, gold bugs have reason for optimism. Look for new highs in the yellow metal in the next few months.

Bullion coin purchases may be a good use of your soon-to-arrive tax rebate check, as American Eagles in ? oz platinum coin are going for about $525 or ?-oz. gold coins for around $450.

For an explanation of our ratings, click here.