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Golden Week for Precious Metals Funds

When the Dow Jones Industrial Average tanked 449 points Wednesday, the dive extended Monday's panic-driven, 504-point selloff. With all of the toppling of financial-firm dominos and volatility at its highest level since October 2002, frightened stock-sellers sought out the liquid investment of last resort -- gold.

The price of an ounce of gold shot up by $84, the largest one-day jump in 26 years, to $863.85, sending gold mining and bullion funds to extraordinary gains this week. Excluding inverse funds, the average precious metals fund tracked by Ratings bounced back 12.3% in the five trading days ending Thursday, Sept. 18.

The largest moves in funds came from the PowerShares DB Gold Double Long ETN (DGP), up 30.1%; PowerShares DB Gold Short ETN (DGZ), down 10.8%; and the PowerShares DB Gold Double Short ETN (DZZ), down 20%. These exchange-traded notes are tied to unsecured Deutsche Bank (DB) debt and the Deutsche Bank Liquid Commodity Optimum Yield Gold Index that tracks gold futures contracts.

Leveraged 150% to the Dow Jones Precious Metals Index, the ProFunds Precious Metals UltraSector ProFund (PMPIX) struck the mother lode, gaining 22% for the period.

Mining shares also helped Market Vectors Gold Miners ETF (GDX) to dig up a total return of 21.3%. The largest members of the Amex Gold Miners Index held by the fund include Barrick Gold (ABX), Goldcorp (GG), Newmont Mining (NEM) and Agnico-Eagle Mines (AEM). However, performing better were Great Basin Gold (GBN), up 49.7%; and Harmony Gold Mining (HMY), up 42.2%.

If you are considering the bullion purchase of SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV), up 13.3% and 15.2%, respectively, then take a look at the Central Fund of Canada (CEF), a closed-end fund up 19.9%. The fund currently holds 55.6% gold bullion and 41.7% silver bullion.

Best-Performing Precious Metals Funds for the Week Ending Thursday, Sept. 18
Fund Ticker Rating Fund Type One-Week Total Return
PowerShares DB Gold Double Long ETN DGP U ETN 30.06%
ProFunds Precious Metals UltraSector ProFund PMPIX C- Open-End 22.04%
Market Vectors Gold Miners ETF GDX E+ ETF 21.28%
Van Eck International Investors Gold Fund INIVX C Open-End 20.32%
Central Fund of Canada CEF B+ Closed-End 19.89%
American Century Global Gold Fund BGEIX C+ Open-End 18.91%
Fidelity Select Gold Portfolio FSAGX B- Open-End 18.69%
Fidelity Advisor Gold Fund FGDAX C- Open-End 18.64%
First Eagle Gold Fund SGGDX C+ Open-End 18.64%
iPath Dow Jones-AIG Precious Metals Sub-Index ETN JJP U ETN 18.55%
Source: Bloomberg and Ratings

Performing nearly as poorly as the funds shorting gold, the continuing slide of not-so-precious metals, nickel and aluminum, shaved 9.7% from the iPath Dow Jones-AIG Nickel Total Return Sub-Index ETN (JJN) and 5.7% from the iPath Dow Jones-AIG Aluminum Total Return Sub-Index ETN (JJU). The culprits in this metals-market meltdown? With nickel stockpiles at a four-year high, it's short-term oversupply as well as lower estimates of global economic growth and demand amid the turmoil.

A special word of caution about exchange-traded notes: these are unsecured debt obligations of financial institutions. These iPath ETNs are senior, unsubordinated debt of Barclays (BCS), which on Wednesday took on additional risk and potential reward in purchasing the North American investment banking and capital markets business of the bankrupt Lehman Brothers.

Worst-Performing Precious Metals Funds for the Week Ending Thurs., Sept. 18
Fund Ticker Rating Fund Type One-Week Total Return
PowerShares DB Gold Double Short ETN DZZ U ETN -19.98%
PowerShares DB Gold Short ETN DGZ U ETN -10.81%
iPath Dow Jones-AIG Nickel Total Return Sub Index ETN JJN U ETF -9.73%
iPath Dow Jones-AIG Aluminum Total Return Sub-Index ETN JJU U ETF -5.73%
E-TRACS UBS Bloomberg CMCI Industrial Metals ETN UBM U ETF -4.03%
iPath Dow Jones-AIG Industrial Metals Total Return Sub-Index ETN JJM U ETF -3.48%
iPath Dow Jones-AIG Copper Total Return Sub Index ETN JJC U ETF -1.60%
ELEMENTS Rogers International Commodity Index - Metals RJZ U ETF -0.41%
Vanguard Precious Metals and Mining Fund VGPMX B Open-End 0.65%
SPDR S&P Metals & Mining ETF XME D- ETF 1.23%
Source: Bloomberg and Ratings

By Friday, hope returned to Wall Street and financial markets around the world in the form of a flood of liquidity from central banks and government promises to buy up massive quantities of the toxic securities plaguing financial institutions to avoid the need for more bailouts. Even if the plan works to save financial stocks, the resulting inflation may support the price of gold.

For more information, check out an explanation of our ratings.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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