Precious metals funds were golden in 2010. The mutual funds in this category typically load up on the stocks of gold mining companies such as Randgold Resources and Goldcorp. The price of gold peaked at $1,432 an ounce on Dec. 7, while the companies held by precious metals funds enjoyed rising profits and the fund category gained 41.7%, according to Morningstar.
Why the big gain in 2010? "Some big miners took off hedges," explains Janet Yang, an analyst who covers the equity precious metals fund category for Morningstar. That is, they stopped entering into contracts to sell their gold at a preset price. Without the hedges, Yang explains, these mining firms' stock prices move more closely with gold prices, so they enjoyed hefty returns in last year's run-up.
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