Gold acts as a barometer of world tension. And tension across the globe has been rising this week.

The insurgency in Iraq continues unabated, the saber-rattling between the U.S. and Iran continues, and Russia is increasingly acting as though the Cold War is back again.

And as the tension rose, so did gold this week as it continued its ascent to challenge the May 2006 high of $714.80 per ounce. On Thursday, Feb. 22, the price of gold closed at 677.45, up 1.15% for the week and 6.40% so far this year.*

This is all scary stuff, but what really struck fear into the heart of Wall Street this week was the release of the Jan. 31 minutes of the

Federal Open Market Committee

showing that the members of the committee were unanimous in their desire to fight inflation.

The minutes "noted that the prevailing level of inflation was uncomfortably high." Add to that a spate of recent economic statistics, such as the higher-than-expected reading of the consumer price index, and the next move in interest rates would most likely be up, not down.

While the rest of the market pulled back from all-time highs, gold rose, sending the average precious-metals mutual fund we rate up 1.66% for the four trading days from Thursday, Feb. 15, through the 22nd.

Three of the funds that won spots on our top-10 list were written about by one of our reporters, Simon Constable, in his article

Gold Funds Hoard Cash. Both U.S.

(UNWPX) - Get Report

Global Inv World Precious Minerals (UNWPX) and

(SGGDX) - Get Report

First Eagle Gold Fund (SGGDX) were given as examples of funds that hold higher levels of cash, allowing them flexibility to time the market.

On the other hand, they were outperformed by the third fund,

(TGLDX) - Get Report

Tocqueville Gold (TGLDX), whose fund manager does not favor market-timing.

The point is that managers of narrowly focused sector funds that cannot diversify better be good at either market-timing or due diligence in stock-picking.

Click here for larger image.

Source: Bloomberg

The best-performing precious-metals fund this week is the

(OPGSX) - Get Report

Oppenheimer Gold and Special Minerals Fund (OPGSX), which gained 2.36%. Be aware that the fund has a steep front load of 5.75%, a 2% early withdraw penalty, a 0.24% 12b1 fee and a 1.25% expense ratio. A full 97.7% of the fund is invested in mining shares, with 1% in metal fabrication and less than 1% in each of the oil-and-gas services and iron/steel industries.

The largest holdings include

First Quantum Minerals

(FQVLF),

Yamana Gold

(AUY) - Get Report

,

Agnico-Eagle Mines

(AEM) - Get Report

and

Barrick Gold

(ABX)

. Two of the biggest winners operate in the West Kimberley region of Australia:

Kimberley Diamond Company

(KMBYF), up 10.84%, and

Sally Malay Mining

(SLLYF), a nickel and cobalt miner, up 13.70%.

As for gold miners,

Avocet Mining

(AVVGF),

Hecla Mining

(HL) - Get Report

, and

Aurizon Mines

(AZK)

rose 10.44%, 10.50% and 8.92%, respectively.

Three of the laggards are pure plays on bullion. Both

iShares COMEX Gold Trust

(IAU) - Get Report

and

streetTRACKS Gold Shares

(GLD) - Get Report

are exchange-traded funds that hold gold bullion bars and closely track the current price of gold. The

(CEF) - Get Report

Central Fund of Canada (CEF) is a closed-end fund that holds half gold and half silver. It is not a surprise that in a rising precious-metals market, mining shares and the funds that hold them outperform the appreciation in bullion.

As long as a mining company avoids forward sales, where gold is sold before it is mined out of the ground, it can benefit from larger differences between the price of gold and the cost to produce that gold. These "unhedged" companies get the chance to sell their gold later on at higher prices.

*Gold traded Monday, Feb. 19, when U.S. markets were closed.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, 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.