Investors in gold have, essentially, three basic alternatives: bullion; individual equities; or funds that invest in gold and gold-related equities (gold mutual funds, Exchange Traded Funds - ETFs, etc.).
Bullion or coins are a relatively conservative way to invest in gold. While investing in the physical metal may sound simple, it requires special considerations, such as having safe-keeping (custodial) arrangements to store the metal and determining the creditworthiness of the custodian. These considerations make bullion investing unrealistic for many investors.
Equities of gold mining companies offer greater leverage than direct ownership of the metal itself. The sensitivity of share prices to a hypothetical rise in metal price is related to the cash flow from current production and the valuation impact on proven and probable reserves. Excessive reliance on trading strategies to generate returns, however, can be expensive and tax-inefficient, as well as time consuming. Many who have tried to outsmart this market by hyperactive trading have under-performed. And it requires substantial research, analysis and continual monitoring.
Benefits of Gold as an Investment
- Diversification -- Gold belongs to a distinct asset class and may thus be an effective means of portfolio diversification.
- Low Correlation -- Gold has a low correlation with the overall U.S. equity markets (as measured by the S&P 500). Gold not only diversifies your portfolio but, when included with your portfolio of U.S. equities, may help dampen the volatility of your overall portfolio.
- Hedge -- Gold has traditionally acted as a hedge against financial assets. So, in uncertain times and in periods of high inflation, gold may act as an effective store of wealth.
- Demand -- Demand for gold is on the increase, fueled by the jewelry industry as well as by industrial demand.
Also see and
|
Investments such as gold mutual funds are managed by professionals who can assess the relative merits of investing in bullion and equities, do the necessary research and continue to monitor the portfolio regularly. With an actively managed gold mutual fund, we believe that a “buy and hold” strategy followed by an investor should be more than sufficient to compensate for the inherent volatility of this asset class.
Morningstar, Inc., a mutual fund rating service,
defines gold
mutual funds – those having a precious metals objective
set out in the offering prospectus – as those “Funds
that pursue capital appreciation by investing primarily in
equity securities of companies engaged in the mining, distribution,
or processing of precious metals.”
Likewise, Morningstar
assigns gold
mutual funds to its “Specialty--Precious Metals Category” if
the fund's portfolio focuses on “mining stocks, though some
do own small amounts of gold bullion. Most portfolios concentrate on gold-mining
stocks, but some have significant exposure to silver, platinum,
and base metal mining stocks as well. Precious metals companies
are typically based in North America, Australia, or South Africa.”
Midas Fund, included in Morningstar’s group of gold
mutual funds, pursues gold
investing by having at least 65% of its total assets in
(i) securities of companies primarily
involved, directly or indirectly, in the business of mining,
processing, fabricating, distributing or otherwise dealing
in gold, silver, platinum or other natural resources (“Natural
Resources Companies”) and
(ii) gold, silver and platinum bullion.
Up to 35% of the Fund’s assets may
be invested in securities of companies that derive a portion
of their gross revenues, directly or indirectly, from the business
of mining, processing, fabricating, distributing or otherwise
dealing in gold, silver, platinum or other natural resources,
in securities of selected growth companies and fixed income
securities of any issuers, including U.S. government securities.
Like many gold
mutual funds, Midas Fund may invest in domestic or foreign
companies that have small, medium or large capitalizations
and concentrates its investments by investing at least 25%
of its total assets in Natural Resources Companies. Because gold
mutual funds typically concentrate investments in smaller
companies and foreign securities, with mining and exploration
risks of precious metals, gold
mutual funds are riskier and more speculative than general,
diversified funds. Unlike some other gold
mutual funds, in seeking to enhance returns, Midas Fund
may use futures, options and short sales, and may use leverage.
We believe that a reasonable allocation to a gold mutual fund in a conservative, diversified portfolio would be limited to 3% and up to 10% for aggressive investors.
To learn more about gold
investing and Midas Fund, we invite you to explore
our web site or call 1-800-400-MIDAS (6432) to speak to
a shareholder services representative. Thank you for investing with
Midas!
|
Prospectus
