Prospecting for Profits: Gold Funds Soared 22.7% in First Quarter, Topping Other Sectors

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Leery investors, anticipating a rise in the prices of goods and services, are now looking to put their money in hard assets--namely gold. The top-performing mutual fund sector in the first quarter of 1996 was gold. According to New York-based Lipper Analytical Services, which tracks the performance of mutual funds, gold funds soared 22.7%. These funds seek capital appreciation by investing at least two-thirds of their assets in the shares of gold mining concerns.

"People tend to invest in gold funds if they're worried about inflation and interest rates are low," says Jon Teall, a research coordinator with Lipper. (The Federal Reserve Bank lowered the interest rate in January, from 5.5% to 5.25%.)

The top-performing mutual fund year-to-date (as of March 31) was the Midas Gold Fund. The $190 million fund was up 74.58%, according to Lipper. The minimum initial investment for this no-load fund is $500, but you can also make monthly payments of $50. For a prospectus, call 800-400-MIDAS.

The following is an interview with James Turk, strategic advisor, and Kjeld Thygesen, fund manager, for the Midas Gold Fund.

BE: At the beginning of the year, the price of gold rose because there was higher demand and less supply. How did this affect the fund?

THYGESEN: Basically, the move in gold above $400 had a positive impact on gold-producing stocks, although it was also felt to a lesser extent on some of the older exploration development companies.

BE: You invest in North American and South African gold-mining shares. What are some of the key distinctions between companies based here compared with South Africa?

THYGESEN: South African gold companies are primarily influenced by movements in the gold price and factors such as currency, labor and costs. But it is the highest cost industry sector in the world compared with North American mining companies and Australian gold mining companies.

BE: South Africa tends to reap the benefits from surging gold prices. What is your outlook for future growth in this area?

THYGESEN: We're fairly cautious about South Africa. We have 10% in South Africa right now, which compares with none last year. We increased it at the beginning of this year with the rise in the gold price. If the rise in the gold price is sustained over $400 an ounce, it's likely that we will increase the South African exposure. South Africa, with its underground mining, has a different cost structure than most of the North American and Australian mines, which are huge holes in the ground. These differences can affect performance.

BE: What's the investment breakdown of the fund?

THYGESEN: The majority of the portfolio is invested in the intermediate gold producers, small-to-medium producers who are in the process of expanding by exploration or acquisition. They have a good strong growth profile. We do have a minority portion in the major producers. These include the big market cap stocks such as Barrick Gold, Newmont Mining and Homestake Mining. Along with the other major producers, they're a quarter of the portfolio. …