Gold Fund Investors Ride Roller Coaster

Want a roller-coaster ride without ever leaving the ground?Take a look at the United Services Gold Shares Fund.

United Services Gold Shares slumped 16 percent in 1991 and 51percent in 1992, then soared 124 percent in 1993. This year, thefund fell 24.6 percent after losing 3 percent in 1994, according tothe New York-based research group Lipper Analytical Services Inc.

Any gold fund, of course, is likely to suffer the slings andarrows of a commodity over which the fund managers have no controlwhatsoever. But then, how much control does any fund manager haveover the underlying securities of any fund?

Still, an investor in a gold fund has to have a pretty strongstomach.

Looking at the ups and especially the downs on a chart of UnitedServices Gold Shares, it would appear there's a better than 50-50chance 1996 will be a good year to own the United Services fund. Tobe sure, it also could be another horrible year.

"There's a good chance we're at the bottom," said Victor Flores,who manages the $250 million fund for United Services Advisors Inc.in San Antonio, Texas. "The same thing happened in 1992. Everyonethrew in the towel and the next year South Africa gold mining stockswere up 150 to 300 percent."

United Services Gold Shares Fund invests about 85 percent of itsassets in South African gold mining companies.

That has been the fund's mandate since its creation in 1974,Flores said.

It's a mandate that has spelled disaster this year. The fund isthe worst performing of 38 gold stock funds tracked by LipperAnalytical.

The average gold fund was up 3.5 percent, led by the Midas Fund,up 39.5 percent, and IDS Precious Metals, up 25.7 percent.

United Services' other gold fund, the United Services World GoldFund, a $200 million fund that Flores also manages, is up 15.9percent this year, Lipper Analytical said.

The difference between United Services' Gold Shares and WorldGold funds is that Gold Shares invests mainly in South Africa and theWorld fund invests everywhere, Flores said.

United Services Gold Shares Fund's top three holdings are FreeState Consolidated Gold Mines Ltd., Driefontein Consolidated Ltd. andSouthvaal Holdings Ltd., which account for about 20 percent of itsassets, Flores said. Free State Consolidated Gold Mines shares aredown about 52 percent this year; Driefontein Consolidated shares aredown about 32 percent, and Southvaal Holdings shares are down about20 percent.

South Africa's gold production is down 5 percent to 7 percentthis year, Flores said.

"That's pretty dramatic when you consider the inflation rate isup 9 to 10 percent and gold prices have been flat," he said. "Theresult is earnings have just been destroyed."

The main reason for the decline in gold mining production istied to the inability of leaders of the country's miners union toenforce an agreement that workers made with the union, Flores said.

The union has been in disarray since the elections of April,1994, when top union leaders took new jobs in President NelsonMandela's administration, he said.

Still, Flores said he's optimistic about the outlook for SouthAfrican gold mining stocks.

"The market has already factored into it that the problem won'tgo away," Flores said. "It will eventually. It always does."

Tom Petruno is off.

Gold Fund Investors Ride Roller Coaster

Want a roller-coaster ride without ever leaving the ground?Take a look at the United Services Gold Shares Fund.

United Services Gold Shares slumped 16 percent in 1991 and 51percent in 1992, then soared 124 percent in 1993. This year, thefund fell 24.6 percent after losing 3 percent in 1994, according tothe New York-based research group Lipper Analytical Services Inc.

Any gold fund, of course, is likely to suffer the slings andarrows of a commodity over which the fund managers have no controlwhatsoever. But then, how much control does any fund manager haveover the underlying securities of any fund?

Still, an investor in a gold fund has to have a pretty strongstomach.

Looking at the ups and especially the downs on a chart of UnitedServices Gold Shares, it would appear there's a better than 50-50chance 1996 will be a good year to own the United Services fund. Tobe sure, it also could be another horrible year.

"There's a good chance we're at the bottom," said Victor Flores,who manages the $250 million fund for United Services Advisors Inc.in San Antonio, Texas. "The same thing happened in 1992. Everyonethrew in the towel and the next year South Africa gold mining stockswere up 150 to 300 percent."

United Services Gold Shares Fund invests about 85 percent of itsassets in South African gold mining companies.

That has been the fund's mandate since its creation in 1974,Flores said.

It's a mandate that has spelled disaster this year. The fund isthe worst performing of 38 gold stock funds tracked by LipperAnalytical.

The average gold fund was up 3.5 percent, led by the Midas Fund,up 39.5 percent, and IDS Precious Metals, up 25.7 percent.

United Services' other gold fund, the United Services World GoldFund, a $200 million fund that Flores also manages, is up 15.9percent this year, Lipper Analytical said.

The difference between United Services' Gold Shares and WorldGold funds is that Gold Shares invests mainly in South Africa and theWorld fund invests everywhere, Flores said.

United Services Gold Shares Fund's top three holdings are FreeState Consolidated Gold Mines Ltd., Driefontein Consolidated Ltd. andSouthvaal Holdings Ltd., which account for about 20 percent of itsassets, Flores said. Free State Consolidated Gold Mines shares aredown about 52 percent this year; Driefontein Consolidated shares aredown about 32 percent, and Southvaal Holdings shares are down about20 percent.

South Africa's gold production is down 5 percent to 7 percentthis year, Flores said.

"That's pretty dramatic when you consider the inflation rate isup 9 to 10 percent and gold prices have been flat," he said. "Theresult is earnings have just been destroyed."

The main reason for the decline in gold mining production istied to the inability of leaders of the country's miners union toenforce an agreement that workers made with the union, Flores said.

The union has been in disarray since the elections of April,1994, when top union leaders took new jobs in President NelsonMandela's administration, he said.

Still, Flores said he's optimistic about the outlook for SouthAfrican gold mining stocks.

"The market has already factored into it that the problem won'tgo away," Flores said. "It will eventually. It always does."

Tom Petruno is off.