Gold Mutual Funds

Gold Mutual Funds

Gold mutual funds invest predominantly in the equity securities of companies that operate with precious metals, thereby striving for the appreciation of capital. Companies that deal with the processing, distribution, and mining of precious metals are thus a prime investment target for these mutual funds. Gold mutual funds are quite profitable, because any increase in the gold price results in an increase of the profit, since these companies have fixed expenses. There are risks, of course – for example, when the prices start going down. To protect themselves against this risk, mutual funds have the following system: their prices are twice the price of gold at any given point in time.

Other factors that can influence their prices include organizational problems of the companies and the general status of the stock market. If the market is booming, all stocks go up, including gold stocks, even if the price of gold remains unchanged. In general, gold mutual funds are a great option if you think gold prices will rise, and the best funds will be those with the best leverage. If you choose to make such an investment, you should work in close cooperation with a trusted professional, who can make an accurate assessment of the merits of equity investments, do the research required, and manage your portfolio.

Gold mutual funds are characterized by several common features. First, they offer diversification within the sector as well as professional management. Second, they can have a correlation with the market, but this is not always the case. Gold mutual funds move more than gold, both in an upward and downward direction. The funds have some differences as well. In terms of investment style, they vary from daring to very conservative. The type of load is also different, from no-load to back-end and front-end. The expense rations vary from 0.4 percent to 2 and more percent, and the turnover is different too – from 2 percent to over 500 percent. In view of size, gold mutual funds vary from $80 million to $4 billion and larger.

One of the best-known gold mutual funds is the Midas Fund. The majority of its assets are in securities of companies in the fields of gold mining, manufacturing and processing. The remaining assets are in the securities of companies, indirectly involved in this sector. Midas is a typical gold mutual fund in that it chooses to invest in foreign or home-based companies with capitalization of all sizes. It focuses its investments by putting at least a quarter of all of its assets in companies, committed to natural resources. These funds usually invest in smaller companies, which puts them at greater risk. Midas usually sells less than half of its net assets, and sometimes carries out futures and options transactions. The organization faces the risk of increasing the misbalance or reducing returns with these transactions. What it more, futures, options, and other derivatives can lack liquidity and be susceptible to volatility. Such instruments are very sensitive to changes in the interest rate, index, or security.

In short, it is recommendable to have gold mutual funds as a part of a diversified portfolio if stability is of paramount importance to you. The price of gold may be stable, but the funds not always are.

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