Gold starting to lose its luster

So much for going for the gold.

After two straight years at the top of the mutual fund heap, gold-oriented funds have finally lost their luster.

Year-to-date through last Thursday, the average gold fund tracked by Lipper Inc. had fallen 3.09% – the second-worst showing among the New York company’s 41 stock- and balanced-fund categories.

For the one-year and three-year periods, the category was up 8.14% and 23.31%, respectively.

Fidelity Select Gold, the biggest gold fund, with $595 million in assets, had fallen 8.09% year-to-date. The fund is offered by Fidelity Investments in Boston. Meanwhile, the $220 million Van Eck International Investors Gold Fund, offered by Van Eck Global in New York, dropped 8.91%.

“Clearly, it’s not the hot sector right now,” says Caesar Bryan, manager of the $174 million Gabelli Gold Fund.offered by Gabelli Asset Management Co. in Rye, N.Y. But “you have to roll with it and deal with the hand you are given.”

That’s easier said than done, especially for investors who jumped into such funds earlier this year with hopes of a repeat of 2002, when the average gold fund climbed 62.96%, compared with a loss of 20.84% for . the average stock fund.

A number of factors are fueling the gold meltdown. Chief among them is volatility in the price of gold. The volatility stems from a host of uncertainties, from the Iraq war to the short-term prognosis for the economy.

While gold currently sells for $347.50 an ounce, this year it has bounced back and forth from a high of $380 to a low of $321.35.

The stock market’s ongoing rally has also tarnished many a gold fund.

“Gold just hasn’t been interesting for people,” says Mr. Bryan, whose fund had fallen 5.62% as of Thursday.

Lynn Russell, a mutual fund analyst for Chicago-based Morningstar Inc., says investors shouldn’t be surprised by the sudden downturn of gold funds.

“Gold is pretty much doing what it always does,” she says of the extremely volatile sector. “And that, I’m afraid, is anything gold wants.”