Gold So Low It’S A Bargain?

In movies such as “Treasure of the Sierra Madre” and “Goldfinger,” people would lie, cheat, steal, even kill for gold. These days it looks like no one wants to go near it, including mutual fund investors.

Funds that focus on gold mining stocks have dropped along with the price of gold itself, which went for $875 an ounce in 1980 but trades today in the $250 range. Through mid-July, gold funds turned in the worst year-to-date performance of all the fund categories tracked by Lipper Inc., with a return of minus 11.46 percent. By comparison, funds linked to the Standard & Poor’s 500 index had a positive return of 15 percent.

Look back over the past five years, and the carnage continues, with gold funds suffering an average return of minus 15.35 percent each year.

The fact is, investors who have been in gold funds long-term have lost money, and they’re understandably not happy. But for bargain-hunters looking for an undervalued investment, gold funds might be worth considering.

“It doesn’t mean it has lost any of its usefulness. It’s just out of favor,” James Turk, strategic adviser to the Midas Fund, said of gold. “When it becomes this extreme on the negative side as it is now, it’s a sign that a price reversal is lurking.”

Gold’s problem is that relatively few people believe they need to continue holding it as a hedge against inflation or political uncertainty. Central banks including the Bank of England have begun selling off some of their reserves, believing their money would be better invested in other assets, including stocks, and that has helped send gold prices down even more.

Joseph Foster, co-manager of the Van Eyck gold funds, predicted that as central bank sales slow, mining companies will have more opportunity to improve their sales, and their stocks should rise.

Of course, fund managers try to be upbeat. But in making their case for gold, fund managers can point to other investments that have made dramatic comebacks recently.

Crude oil, which had slumped to the neighborhood of $10 a barrel late last year, is now trading at nearly twice that amount. Natural resource funds, which include oil stocks, have returned 30.55 percent so far this year, and in the past 13 weeks, 14.96 percent, more than double the 6.73 percent returned by S&P funds.