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Investing

Tocqueville Gold Goes Global

The fund loads up on small and midsize mining companies.

We’ve never met a gold-fund manager who wasn’t bullish on the metal. John Hathaway, manager of Tocqueville Gold Fund (symbol TGLDX), is no different. Despite gold’s breathtaking ascent -- over the past five years through November 3, it soared from $456 an ounce to $1,356 -- Hathaway sees more gains ahead because of low interest rates and huge budget deficits in the developed world. He expects that current government and central-bank policies will cause all paper currencies, including the dollar, to lose value in coming years -- a development that would also bode well for gold. In addition, central banks are buying gold, boosting demand for the metal and therefore its price.

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Hathaway’s bullishness aside, he and his fund have been sparkling of late. For the past 12 months that ended November 3, Tocqueville returned 57.0%. That beat Standard & Poor’s 500-stock index by a whopping 40.1 percentage points and the average precious-metal fund by 20.8 points. The fund’s three-year annualized return of 16.2% beats the S&P 500 by an average of 21.5 points per year and the average precious-metal fund by 8.1 points a year.

Like most gold-fund managers, Hathaway invests mainly in mining stocks. At last word, his fund had 8% of assets in miners, 9% in bullion and the rest in cash and other precious metals. Nearly 70% of those miners are outside the U.S. Most are in Canada, but the fund also holds firms based in such exotic locales as Burkina Faso and Mali.

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Hathaway says he thinks gold stocks are cheap relative to the metal and that it will take two to three years for them to become fairly valued. He says that mining companies can grow by boosting their output, while gold itself increases in value only if its price rises. Moreover, mining stocks, unlike the metal, are capable of paying dividends -- especially now that industry profits are booming.

Tocqueville has trounced its rivals, says Hathaway, by loading up with stocks of small and midsize miners. Smaller firms can grow faster than larger ones and are more likely to be acquired. Hathaway says he and his three analysts travel extensively around the world to discover promising mining companies before others do.

Although everyone, it seems, is bullish on gold nowadays, don’t invest in any gold fund without being aware of the risks. Mining stocks are far more volatile than the price of gold itself. (That’s not surprising, given that miners’ profits move up and down far more sharply than the metal’s price.) And Tocqueville Gold is twice as volatile as Standard & Poor’s 500-stock index. From 1990 through 1998, a rough period for gold, the average gold fund lost 40%. (Tocqueville launched in 1998.)

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