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Gabelli
Gold
Fund,
Inc.
THIRD QUARTER REPORT
SEPTEMBER 30, 1998
<PAGE>
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Gabelli Gold Fund, Inc.
Third Quarter Report - September 30, 1998
[PHOTO OMITTED]
Caesar Bryan
To Our Shareholders,
During the third quarter of 1998, our South African gold holdings
generally performed best with Gold Fields, Durban Deep, St. Helena and Impala
all rising by more than 50%. These shares had been oversold and usually are more
sensitive to changes in the gold price. However, the Fund's best performing
holding was Meridian Gold, based in Reno, which announced positive exploration
results from its Chilean property.
For the first nine months of 1998, the Gabelli Gold Fund returned 5.1%,
compared with negative returns of 8.0% and 1.1% for the average gold fund
tracked by Lipper and the XAU Index, respectively. Indeed, the Gabelli Gold Fund
was the best performing gold fund for the first nine months of the year.
Investment Performance
For the third quarter ended September 30, 1998, the Gabelli Gold Fund's
(the "Fund") total return was 8.6%. The Lipper Analytical Services Gold Fund
Average and the Philadelphia Gold & Silver ("XAU") Index of large North American
gold companies had returns of 4.3% and 4.6%, respectively, over the same period.
Each index is an unmanaged indicator of investment performance. The Fund was
down 32.0% over the trailing twelve month period. The Lipper Gold Fund Average
and XAU Index declined 33.4% and 31.5%, respectively, over the same twelve month
period. Since inception on July 11, 1994 through September 30, 1998, the Fund
had a total return of (37.7)%, which equates to an average annual return of
(10.6)%.
<PAGE>
INVESTMENT RESULTS (a)
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<TABLE>
<CAPTION>
Quarter
------------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1998: Net Asset Value ......... $6.63 $5.68 $6.17 -- --
Total Return ............ 12.9% (14.3)% 8.6% -- --
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1997: Net Asset Value ......... $11.83 $9.79 $9.17 $5.87 $5.87
Total Return ............ (4.0)% (17.2)% (6.3)% (35.4)% (51.9)%
- ------------------------------------------------------------------------------------------
1996: Net Asset Value ......... $14.00 $13.40 $13.46 $12.32 $12.32
Total Return ............ 22.7% (4.3)% 0.4% (8.5)% 8.0%
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1995: Net Asset Value ......... $11.00 $11.96 $12.27 $11.41 $11.41
Total Return ............ (0.6)% 8.7% 2.6% (7.0)% 3.1%
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1994: Net Asset Value ......... -- -- $12.37 $11.07 $11.07
Total Return ............ -- -- 23.7%(b) (10.5)% 10.7%(b)
- ------------------------------------------------------------------------------------------
</TABLE>
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Average Annual Returns - September 30, 1998 (a)
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1 Year ............................ (32.0)%
3 Year ............................ (20.2)%
Life of Fund(b) ................... (10.6)%
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Dividend History
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Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- ------------------
December 29, 1997 $0.058 $5.86
(a) Total returns and average annual returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of operations on July 11, 1994. Note:
Investing in foreign securities involves risks not ordinarily associated with
investments in domestic issues, including currency fluctuation, economic and
political risks. Investing in gold is considered speculative and is affected by
a variety of worldwide economic, financial and political factors.
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Our Investment Objective
The Fund's objective is to obtain long term capital appreciation by
investing in equity securities of foreign and domestic issuers principally
engaged in gold and gold-related activities.
Our Approach
We look at a number of company specifics in order to determine which gold
stocks are relatively undervalued. Our primary focus is on capitalization per
ounce of production and, more importantly, on capitalization per ounce of
recoverable reserves. This determines how much gold actually backs every dollar
invested in a gold company. We appreciate that every mining company must replace
the gold that it mines, and we place a heavy emphasis on the quality of
management and their ability to create shareholder wealth. We invest globally
with an emphasis on gold-producing companies.
2
<PAGE>
Global Allocation
The accompanying chart presents the Fund's holdings by geographic region
as of September 30, 1998. The geographic allocation will change based on current
global market conditions. Countries and/or regions represented in the chart and
below may or may not be included in the Fund's future portfolio.
[The following table was depicted as a pie chart in the printed material.]
HOLDINGS BY GEOGRAPHIC REGION - 9/30/98
North America 61.1%
South Africa 26.3%
Australia 9.9%
Europe 1.5%
Latin America 1.2%
COMMENTARY
Gold and gold equities experienced a powerful reversal over the third
quarter. During July and August, the price of gold continued its slide and by
the end of August was trading at $276 per ounce with the XAU Index falling under
50. This was quite surprising bearing in mind the turbulence that was occurring
in the world's financial markets. Early in August, Japan had its largest
corporate bankruptcy and by mid-August the Russian crisis was in full force. On
August 17, Russia issued a debt moratorium and devalued its currency. World
equity markets had already peaked in July and were in broad retreat due to
earnings concerns even as bond yields fell to record lows. In the face of this
turbulence investors continued to ignore gold. However, that changed at the
start of September when Maylasia introduced capital controls and the Japanese
central bank cut interest rates by one-half to 25 basis points. As gold
recovered by about $20 to end September at $296.20 per ounce, gold equities
soared. During September, the net asset value of the Gabelli Gold Fund rose by
50%.
On a number of occasions we have commented on the close correlation
between gold and the U.S. dollar. When the dollar rises, gold falls and vice
versa. Since the outset of the emerging market crisis, the dollar has attracted
capital flows due to its "safe haven" status. Dollar strength combined with
robust domestic demand has caused a further deterioration in the U.S. trade
deficit which is now running at nearly $15 billion per month. This, of course,
must be financed by capital inflows. Recently, foreigners have been happy to
finance this deficit, but a strong dollar is deflationary for the rest of the
world and makes interest payments by debtor countries even stiffer. The risk of
severe dislocations in financial markets caused the Federal Reserve Board to
lower interest rates at the end of September. The dollar immediately began to
decline and the market anticipates further rate reductions, which are likely to
make the dollar even less attractive. This should be positive for gold prices.
Interestingly, over the past two months, the gold lease rate, which is the
cost of loaning gold, has not risen. This is surprising bearing in mind that the
lease rate represents the interest rate that central banks charge to lend gold
to banks who then sell it on their own or on their clients' behalf. With
perceived increased risk in the financial system, it might be reasonable to have
expected that central banks would have curtailed their lending activities. After
all, as the old adage goes, gold is the only reserve asset which is not somebody
else's liability.
3
<PAGE>
Let's Talk Stocks
The following are stock specifics on selected holdings of our Fund.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time. The share prices of foreign holdings are stated in U.S. dollar equivalent
terms as of September 30, 1998.
Anglogold Ltd. (ANGJ.J - $54.16 - Johannesburg Stock Exchange) comprises the
South African gold assets of the Anglo American Group. The company's
reorganization involved an offering of shares in Vaal Reefs to shareholders in
the other mines and then a name change from Vaal Reefs to Anglogold. The company
is solely focused on gold and in the future, management efforts will not be
diluted by other mining activities. Over time, we expect the company will expand
outside South Africa, possibly by acquiring Minorco's gold assets. In the
meantime, further improvements can be expected from the company's extensive
South African assets.
Barrick Gold Corp. (ABX - $20.00 - NYSE) is one of the world's leading gold
mining companies. Much of Barrick's growth has come from their very high quality
mines near Elko in Nevada, which the company purchased in the early 1980s.
Barrick has used cash flows from its Nevada Mines and the profits from the
industry's most successful hedging programs to acquire other gold assets in both
North America and overseas. Barrick has low operating costs, a strong balance
sheet and entrepreneurial management.
Durban Roodepoort Deep Ltd. (DURJ.J - $3.40 - Johannesburg Stock Exchange) is a
South African-based gold mining company. The company produces gold from
underground mines as well as from reprocessing surface "dumps." Durban Deep has
been active in consolidating its land position by buying contiguous operations.
The process is now largely complete and the company is now undertaking a
feasibility study on the Argonaut project, which contains a massive resource of
gold deep under the city of Johannesburg.
Euro-Nevada Mining Corp. (EN.TO - $16.54 - Toronto Stock Exchange) is a sister
company of Franco-Nevada and shares the same management. However, Euro-Nevada
only invests in gold royalty properties. The company's flagship royalty
properties are its 4% net smelter return and 5% net profits interest royalty on
Barrick Gold's Meikle Mine in the Carlin Trend of Nevada. The company has
assembled impressive royalty properties, many of which are in production. Among
a number of recent exciting developments is the continuing flow of news from the
company's Midas joint venture in Nevada with Franco-Nevada. Euro-Nevada owns 50%
of this project, which will be one of the lowest cost gold mines in the world
when it comes into production.
Franco-Nevada Mining Corp. (FN.TO - $20.77 - Toronto Stock Exchange) is a
Canadian company which invests in gold and other natural resource royalty
properties. Its major assets are the royalties attached to the Goldstrike Mine
operated by Barrick Gold in the Carlin Trend of Nevada. The company's other main
gold interest is a joint venture with Euro-Nevada at Midas, also in Nevada,
where exploration drilling is taking place. Recently, Franco-Nevada acquired a
royalty over most of the Stillwater ore body in Montana from the Manville
Corporation. Franco-Nevada also owns a royalty over the Pandora platinum
property controlled by Amplats Platinum in South Africa. The company has a very
strong balance sheet, which was further strengthened by an equity offering that
was completed in January 1998.
4
<PAGE>
GoldCorp Inc. (GA.TO - $5.14 - Toronto Stock Exchange) is a mid-sized Canadian
gold producer with two producing gold mines and two industrial mineral
operations. The company's most significant asset is the Red Lake Mine, which is
part of a major gold camp in Canada. Exploration drilling has revealed
previously unknown high-grade ore zones, which will add significantly to the
mine's reserves. These new discoveries will result in increased production at
significantly lower costs. GoldCorp is undervalued relative to other mid-sized
producers and we expect management to add significantly to shareholder value.
Newmont Mining Corp. (NEM - $24.25 - NYSE) is one of the premier growth gold
mining companies in North America. Following a merger with Santa Fe Gold in May
1997, Newmont significantly added to its gold reserves. Newmont expects to
produce about four million ounces in 1998 at a cash cost of less than $200 per
ounce. Seventy five percent of its production comes from Nevada, where Newmont
has a very large land position. Outside the United States, the company has
operations in Indonesia, Peru and Uzbekistan. The company is currently
developing a large copper and gold porphyry in Indonesia. Although Newmont is a
low cost producer, the stock is very sensitive to changes in the gold price
because the company does not hedge its production and has a significant amount
of debt.
Placer Dome Inc. (PDG - $13.8125 - NYSE) is one of the leading gold mining
companies in North America. In 1998, the company expects to produce 2.9 million
ounces of gold and over 10 million ounces of silver. Placer Dome also has copper
interests. The company operates mines in North America, Australia, Papua New
Guinea and Chile. Placer Dome's most profitable mine is the Pipeline in the
United States which produces gold at a cash cost of less than $100 per ounce.
For 1998, the company expects its cash costs not to exceed $160 per ounce.
Placer's main development property is located in Venezuela which is a large
project expected to cost over $500 million to bring into production.
Prime Resources Group (PRM.TO - $8.55 - Toronto Stock Exchange) is a mid-sized
precious metals mining company which owns the Eskay Creek and Snip Mines in
northwestern British Columbia. The company is a 51%-owned subsidiary of
Homestake, a leading gold mining company based in the U.S. which, as a low cost
producer, only hedges a small amount of its production. At the end of 1997,
Prime had resources of 2.7 million ounces of gold and 117 million ounces of
silver. Homestake has offered to buy the shares of Prime that it does not
already own using its own shares as consideration and Prime's independent
directors are now considering the fairness of the bid.
Stillwater Mining Co. (SWC - $31.5625 - AMEX) is the only U.S. producer of
platinum and palladium, rare precious metals used in many industrial
applications and in the jewelry industry. The largest use for platinum is in
catalytic converters for the auto industry, while about half of the supply of
palladium is consumed in the production of electronic components for personal
computers and cellular telephones. Historically, platinum has traded at a
premium to the gold price. Russia is the world's major producer of palladium.
However, due to uncertainties about supplies, combined with strong demand, the
price of palladium has risen sharply during the past year. Stillwater controls a
massive high-grade platinum/palladium ore body in southern Montana. New
management has been successful in improving mining operations and is now
embarking on an expansion program. The company has excellent growth potential.
5
<PAGE>
Minimum Initial Investment - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
Additionally, The Gabelli Gold Fund and other Gabelli Funds are available
through the no-transaction fee programs at many major discount brokerage firms.
In Conclusion
We believe the current conditions of unusual stress in financial markets
as evidenced by widening credit spreads and heightened volatility are supportive
of higher gold prices. During the next few months, markets will have to deal
with the restructuring of Russia's debt and the financing of Brazil's current
account deficit. Of course, these problems are well known and were contributing
factors behind the Federal Reserve's recent interest rate cuts. Clearly, the
Federal Reserve stands ready to cut interest rates again if necessary. We
believe the Fund is well positioned to perform well in an environment of rising
gold prices.
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's Nasdaq symbol is GOLDX. Please call us during the
business day for further information.
We thank you for your loyalty and as always, pledge our best efforts on
your behalf.
Sincerely,
/s/ Caesar Bryan
Caesar Bryan
President and Portfolio Manager
October 30, 1998
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Top Ten Holdings
September 30, 1998
------------------
Stillwater Mining Co. Durban Roodepoort Deep Ltd.
Prime Resources Group Harmony Gold Mining Ltd.
Barrick Gold Corp. Placer Dome Inc.
Euro-Nevada Mining Corp. Franco-Nevada Mining Corp.
GoldCorp Inc. Newmont Mining Corp.
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NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
6
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Gabelli Gold Fund, Inc.
Portfolio of Investments -- September 30, 1998 (Unaudited)
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Market
Shares Value
------ -----
COMMON STOCKS - 100.0%
Metals and Mining - 100.0%
Australia - 9.9%
15,000 AGSM .................................. $ 136,875
230,000 Emperor Mines Ltd.+ ................... 59,255
245,000 Lihir Gold Ltd.+ ...................... 316,320
400,000 Normandy Mining Ltd. .................. 337,581
80,000 Ranger Minerals NL+ ................... 184,782
385,000 Resolute Samantha Ltd. ................ 264,499
------------
1,299,312
------------
Ireland - 1.5%
414,771 Glencar Explorations plc+ ............. 190,313
------------
North America - 61.1%
205,000 Avgold Ltd.+ .......................... 116,201
35,400 Barrick Gold Corp. .................... 708,000
32,600 Bema Gold Corp.+ ...................... 44,825
40,700 Euro-Nevada Mining Corp. .............. 673,336
28,700 Franco-Nevada Mining Corp. ............ 596,097
30,000 Freeport-McMoRan Copper &
Gold Inc., Cl. B ..................... 356,250
18,600 Getchell Gold Corp.+ .................. 391,763
122,900 GoldCorp Inc., Cl. A+ ................. 632,117
35,000 Golden Star Resources Ltd.+ ........... 44,259
35,000 Greenstone Resources Ltd.+ ............ 62,146
94,200 Guyanor Resources SA, Cl. B+ .......... 93,197
124,700 IAM Gold+ ............................. 401,983
55,000 Kinross Gold Corp.+ ................... 166,127
90,000 Meridian Gold Inc.+ ................... 401,877
19,800 Newmont Mining Corp. .................. 480,150
18,100 Pioneer Group Inc. .................... 298,650
43,300 Placer Dome Inc. ...................... 598,081
86,000 Prime Resources Group ................. 735,335
25,850 Stillwater Mining Co.+ ................ 815,891
151,000 TVX Gold Inc.+ ........................ 397,721
22,437 Venoro Gold Corp., Cl A+ .............. 1,103
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8,015,109
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Peru - 1.2%
23,801 Cia De Minas Buenaventura SA, Cl. C.. 157,531
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South Africa - 26.3%
8,529 Anglogold Ltd. ........................ $ 461,941
7,400 Anglogold Ltd., ADR ................... 198,875
21,658 Ashanti Goldfields Ltd. ............... 2,166
46,000 Driefontein Consolidated Ltd., ADR .... 244,375
170,475 Durban Roodepoort Deep Ltd. + ......... 579,759
40,000 Gold Fields Ltd. + .................... 272,067
60,000 Harmony Gold Mining Ltd.+ ............. 294,734
63,000 Harmony Gold Mining Ltd., ADR+ ........ 307,125
26,000 Impala Platinum Holdings Ltd., ADR .... 331,500
128,355 Kalahari Goldridge Mining Co. Ltd.+ ... 51,298
367,750 Northam Platinum Ltd.+ ................ 171,991
90,000 Randfontein Estates Gold
Mining Co. Ltd.+ ..................... 235,714
90,000 Randgold and Exploration Co. Ltd.+ .... 65,189
20,161 Randgold and Exploration Co. Ltd., ADR+ 44,354
8,500 Saint Helena Gold Mines Ltd. .......... 27,301
31,700 Saint Helena Gold Mines Ltd., ADR ..... 101,044
52,200 West Rand Consolidated Mines Ltd. + ... 60,367
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3,449,800
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TOTAL COMMON STOCKS ................... 13,112,065
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WARRANTS - 0.2%
South Africa - 0.2%
47,000 Durban Roodepoort Deep Ltd.+ .......... 18,383
23,630 Durban Roodepoort Deep Ltd., Ser. B+ .. 7,234
19,750 Northam Platinum Ltd.+ ................ 202
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TOTAL WARRANTS ........................ 25,819
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TOTAL INVESTMENTS - 100.2% ............ 13,137,884
Other Assets and
Liabilities (Net) - (0.2)% ........... (21,506)
------------
NET ASSETS - 100.0%
s(2,125,783 shares outstanding) ...... $ 13,116,378
============
NET ASSET VALUE,
Offering and Redemption
Price Per Share ...................... $ 6.17
============
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+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt.
7
<PAGE>
Gabelli Gold Fund, Inc.
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
fax: 1-914-921-5118
http://www.gabelli.com
e-mail: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
Board of Directors
Mario J. Gabelli, CFA Werner J. Roeder, MD
Chairman and Chief Director of Surgery
Investment Officer Lawrence Hospital
Gabelli Funds, Inc.
Anthonie C. van Ekris
E. Val Cerutti Managing Director
Chief Executive Officer BALMAC International, Inc.
Cerutti Consultants, Inc.
Daniel E. Zucchi
Anthony J. Colavita President
Attorney-at-Law Daniel E. Zucchi Associates
Anthony J. Colavita, P.C.
Karl Otto Pohl
Former President
Deutsche Bundesbank
Officers and Portfolio Managers
Caesar Bryan Bruce N. Alpert
President and Vice President
Portfolio Manager and Treasurer
James E. McKee
Secretary
Distributor
Gabelli & Company, Inc.
Custodian, Transfer Agent and Dividend Agent
State Street Bank and Trust Company
Legal Counsel
Willkie Farr & Gallagher
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This report is submitted for the general information of the shareholders of
Gabelli Gold Fund, Inc. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
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