Who Gets No Respect? Gold, That’s Who

What if I told you that there was a mutual fund that has had the following rate of return over the last several years:

Year to Date: 12% versus 9% on the S&P 500

Last Year’s Return: 39%

And an Average Annual Rate of Return of 27% versus only 14% for the S&P 500.

You would think most investors would want to invest in a mutual fund with these kinds of returns, right?

You would be wrong. This fund, the Tocqueville Gold Fund (TGLDX) only has $1.1 billion under investment.

In the realm of mutual funds, a billion dollars under advisement is pretty much nothing.

But how could it be that investors aren’t throwing their money at this gold fund?

Investors are still leery about the metals sector. Either they don’t understand it or they mock it. As John Hathaway, Tocqueville Gold’s manager recently said in a Barron’s interview:

Here you have an asset class that has been outperforming for some time, and yet it is still treated skeptically. What do you make of that?

Gold’s bubble lies ahead. It has got a long way to inflate. So much about gold has very little to do with gold. It is more about capital-markets psychology. If we are entering a period of difficult markets, which was averted from happening earlier because the Fed pulled this 1% short-term money stunt and bought us a few more years, it is going to change psychology, and that will open the door for more people thinking about gold. What was needed to put gold in overdrive was the scent of fear.

His most interesting comment: That gold’s bubble still lies ahead. This is absolutely correct.

There will be a mania for the metals at some point in the future. I don’t know how soon it will get here. It’s not here yet (as is evidenced by the paltry billion dollars invested in his outstanding fund.)

Gold is still a contrarian investment. It doesn’t become a bubble until everyone is in it. We are a long way from that. People will still mock you if you say you own gold or gold mining stocks.

When gold has respect, that’s when this bull will be over.

Watch the Yellow Metal.