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Fund Spy

Gold-Bug Funds Revisited

Big gold bets have helped these funds lately, but don't get too complacent.

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As the worldwide recession drags on and equity markets continue to drop, lots of people are looking for safe havens amid the turmoil. That's why one of the most traditionally safe investments, gold, has been looking so good in recent months. Gold futures hit a new all-time high of $1,033 an ounce after the federal bailout of Bear Stearns in March 2008. They then pulled back sharply before rising again over the past couple of months amid bad economic news and increasing fears over the viability of the U.S. banking system. On Feb. 20, gold once again topped $1,000 an ounce and has been hovering around that level since.

Investors who want to invest in gold but don't want to buy and store actual gold bars have plenty of options. The  SPDR Gold Shares (GLD) exchange-traded fund is the most direct, as it tracks the price of gold bullion, and various other ETFs also provide gold exposure, as Paul Justice recently described. There are also a number of open-end mutual funds that invest in the stocks of gold miners and producers; the largest such fund by assets is  Fidelity Select Gold (FSAGX). These stocks (and the funds that hold them) tend to be more volatile than direct investments in gold because they involve business risk on top of the fluctuations in gold prices. Over the past three months (as of Feb. 25), SPDR Gold Shares has gained 17%, while Fidelity Select Gold has gained 32%; over the past year, however, the ETF has gained 1.43% and the mutual fund has lost 30%.

It's not too surprising that gold-focused mutual funds and ETFs have done well lately, but what about more-diversified funds with substantial gold holdings? We first explored this question in November 2007 after another spike in gold prices but before the stock market had completely cratered. Back then, we looked at diversified domestic-stock funds with the largest percentage of their portfolio in gold and silver stocks, which Morningstar combines into one category. We found that those funds had done pretty well relative to their peer groups, with five of the 10 ranking in their categories' top decile.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.