Gold Funds Hoard Cash

"If you leave a lot of money in cash, then sooner or later someone says, 'I could have done that'," says Jeff Christian, managing director at New York-based specialty consulting firm CPM Group. "Fund managers can take a lot of criticism."

At the other end of the spectrum, there are some gold fund managers who are quite happy hugging an index.

"Our stance is that gold is in a bull market and most human beings are not clever enough to catch all the twists," says John Hathaway, portfolio manager of the $900 million (TGLDX Quote)Tocqueville Gold Fund (TGLDX). "I don't think any investor is paying me to be a market-timer."

He says that, as of the end of December 2006, his fund held just 1% in cash. It has logged respectable 31% annualized returns over the past five years, according to Morningstar.

Tocqueville Gold's largest holding was physical bullion at 7% of total assets, followed by Yamana(AUY Quote) and Goldcorp, which each accounted for about 5% of the portfolio.