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December 02, 2010 at 11:41 AM
If investing was a popularity contest—and in many ways it is—gold looks set to be voted class president for 2010. Shunned by investors during the 1980s and 1990s as inflation rates decelerated, gold, and investor interest in gold, began to revive in 2005, when it rallied convincingly past $400 an ounce for the first time in decades and never looked back. Since then, gold prices have defied even the most bullish predictions, rocketing to a record high $1,388 an ounce, and drawing new predictions for even further gains.
Standard & Poor’s Equity Analyst Leo Larkin cites “several reasons” for his positive 12-month fundamental outlook for the gold industry, even though gold is already at its highest nominal price ever.
The low interest rate environment means there is little opportunity cost for holding gold, Larkin says, making it much more attractive. Also, “despite the higher gold price, global mine production has been declining for over a decade,” he says. Production levels will probably “remain stagnant for the next several years, as old mines are becoming depleted and are not being replaced to the extent needed to raise output.” Furthermore, heightened volatility in currency markets will likely lead to increased gold demand, he says.
Mutual fund investors have yet another reason to like gold: gold funds have been performing exceptionally well, even during the financial crisis of 2008 and 2009. Of the thousands of funds that have a five-year track record, the top, third, and fourth best average annual returns over that time have been delivered by gold funds, with each of them topping 25% annually.
There are about two dozen mutual funds targeting gold mining companies, and to find the most attractive, we screened for precious metals funds aimed at retail investors that are open to new investors and had a five-star rank from Standard & Poor’s. Just four funds met that …
