Fair use...Gold offers rich lesson in patience
Investors who stay the course with mutual funds are less likely to be fooled by volatility in market
BY DUNSTAN PRIAL
Associated Press
NEW YORK: A recent surge in the performance of mutual funds that focus on gold and other precious metals offers investors a clear example of why short-term gains and losses should be ignored.
Twelve of the top 20 performing mutual funds for the week ended May 4 were gold funds, or funds that invest in the stocks of gold mining companies, according to Lipper Inc., a New York firm that tracks fund performance. As a sector, gold funds rose 8.3 percent for the week, more than any other category.
The sudden and unexpected boost follows a 10-year period during which gold funds were arguably one of the most unpopular sectors for mutual fund investors.
A quick look at some longer-term statistics shows why: gold funds are down 12.8 percent from Jan. 1 to May 4; down 20.8 percent from a year ago; and off 13 percent over the past five years.
Mutual fund analysts say investors should be wary of sharp increases in fund performance figures. Indeed, many industry professionals have decried an apparent shift by investors away from long-term investment strategies in favor of a short-term mentality that seeks quick gains by jumping in and out of hot sectors. The financial media have been criticized by some for contributing to that mentality by putting too much emphasis on funds that have experienced explosive short-term gains.
The recent selloff in the technology sector and subsequent meltdown of many formerly high-flying technology funds has been held up as an example of what can happen if investors fail to compile a diverse portfolio. The same thing could happen to investors who are seduced by the recent performance of gold funds.
Market analysts cite several factors in explaining why gold funds have improved so quickly.
The main reason is that the prices of gold stocks were undervalued for months and are now returning to a more realistic level, said Todd Hinrichs, an analyst at ABN Amro, a Chicago investment banking firm.
Recent stock market volatility is another factor. The huge decline in the technology-focused Nasdaq composite index has led some investors to seek out stability in precious metals.
The threat of additional interest rates hikes, which could slow U.S. growth, has served as additional motivation.
``Gold is the ultimate safe haven when all else fails,'' said Burt Greenwald, a Philadelphia-based mutual fund analyst.
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