Gold mutual funds may be a golden opportunity to run with the bullion bulls

It appears that swine flu is not the only sickness going around – gold fever is also in the air. Inflation fears and a weak dollar have persuaded investors to move more money into gold, pushing the price of the precious metal above the $1,000 mark. Feverish investors have helped gold to climb to an all-time high of around $1,066 an ounce this week, and analysts are forecasting higher prices next year. Even luxury department store Harrods has gotten into the "cash for gold" business, last week agreeing to accept its exclusive clientele's cash for actual Swiss gold bars.

If you can't afford gold bars, one way to get broad exposure to gold is through mutual funds that invest in a basket of companies that are likely to benefit from the current fascination with the precious metal.

Mutual funds capitalize on the results of a number of companies in a sector, spreading investor risk. While those who invested in gold at the start of 2009 have already made a pretty penny, investors are now trying to determine whether a similar golden opportunity will be available in 2010.

Standard & Poor's has forecast a positive outlook for gold and gold mining companies over the next 12 months, meaning their sales and earnings are expected to rise over that period and their stock prices are likely to rise as well.

"Gold prices have broken nicely above key chart resistance just above $1,000 per ounce," said S&P chief technical strategist Mark Arbeter. "If prices break above $1,050 per ounce, we believe it would set the market up for a strong intermediate rally that could take prices up into the $1,200 to $1,500 per ounce range."

This week, gold futures have held above the $1,050 mark, but analysts have cautioned investors not to get too caught up in gold fever. JP Morgan has also forecast gold prices to rise above $1,100 next year, but in a research note earlier this month, the bank's analysts cautioned, "We do remain concerned that gold as an 'inflation trade' is both expensive and premature." Those using gold as a hedge against inflation may want to consider how investing in gold factors into their overall plans if inflation doesn't explode as they fear.

For those who want to invest in gold-based mutual funds, Arbeter recommended the Franklin Gold & Precious Metals fund (FKRCX) as S&P's five-star choice. Arbeter also suggested several S&P four star gold funds, including First Eagle Gold (FEGIX), Tocqueville Gold (TGLDX), Oppenheimer Gold & Special Minerals (OPGSX) and Van Eck International Investors (INIVX).

An additional list of top performing precious metals mutual funds can be found on Yahoo Finance.


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