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To: horsegirl48 who wrote (8395)	7/25/2002 1:33:07 PM
From: stockman_scott	Respond to of 13815

Funds: A gold rush for fund investors By Clint Willis BOSTON, July 25 (Reuters) - Gold has regained its glitter for fund investors. The average fund in the sector climbed 57 percent during the 12 months through June. As a result, many investors are pouring cash into gold funds. But if you are tempted to join the rush to gold, make sure you understand the risks as well as the potential rewards. Many gold fund investors are drawn by the metal's reputation as a hedge against inflation and hard times. Some of that reputation was forged after the 1929 stock market crash: The price of bullion rose 90 percent during the three years through 1932, while stocks declined a horrifying 90 percent. Gold prices rose an astonishing 750 percent during the nine years through 1980, when high inflation and a weak economy created a terrible environment for stocks and bonds. The Dow Jones industrial average posted a cumulative return of just 11 percent during the same period. But gold's prices declined steadily during the following decades. Low inflation, falling interest rates and steady economic growth fueled big gains in stocks and bonds -- and left investors with little reason to hold gold. Meanwhile, there was plenty of gold to meet demand for jewelry and other products that incorporate the metal. One reason: Many central banks sold off portions of their large gold reserves. The recent surge in gold reflects a number of changes. Terrorist threats, slow economic growth, government deficits, a weak dollar and corporate accounting scandals have created an atmosphere of worry on Wall Street -- rekindling gold's appeal as a hedge against bad times. "Moments of fear tend to benefit gold," says Christopher Davis, a gold fund analyst at Morningstar, Inc. Meanwhile, the alternatives to gold offer little appeal. The typical large-cap growth fund declined 34 percent during the 12 months through June, and government bond funds offer payouts of just 4.9 percent on average. Some analysts argue that gold prices will continue to rise during the coming year, but such predictions are notoriously difficult. A rebound in the economy could send investors scurrying back to other market sectors, and gold funds could quickly give back their recent gains. Bear in mind that gold stocks -- and funds that invest in them -- tend to be more volatile than the metal itself. For example, it took only a 13 percent increase in gold prices to send gold funds skyrocketing this year. By the same token, a modest decline in gold prices could lead to severe losses for shareholders. Some investors buy gold funds as a long-term diversification tool to protect them against periods when stocks suffer setbacks. Trouble is, they don't always play that role. For example, precious metal funds lost more than 18 percent during the 12 months through February 2001 -- a period when the S&P 500 was down 7 percent. What about gold's role as an inflation hedge? Many analysts recommend investing in Treasury bonds that are linked to inflation, or REIT funds that own shares of real estate companies. If you decide to add gold to your portfolio, choose your fund carefully. The riskiest gold funds, including most of the past year's top performers, invest exclusively in gold stocks. They include funds such as FirstEagle SoGen Gold (800 334-2143; $1,000 minimum investment; 5 percent load), and American Century Global Gold Investments (800-345-2021; $2,000 minimum; no load). Some funds reduce their risk by diversifying their investments in other metals such as platinum. An example is Oppenheimer Gold & Special Minerals (800-525-7048; $1,000 minimum; 5.75 percent load). (Clint Willis is a freelance writer who covers mutual funds for Reuters. Any opinions in the column are solely those of Mr. Willis.)