The third quarter ending September 30, 2010 was a good one! The funds performance was 32.46 % relative to the S&P/TSX market performance of 10.27%.

Sectors that helped performance included a heavy weight in the junior golds names. The run in this sector was kicked off by a very aggressive take out price paid for, by Goldcorp to buy Andean. The premium to the then trading price was 80%. Kinross had bid for Redback Mining and so the frenzy began. The funds positioning included an overweight of golds and a particularly heavy weight of junior names to seniors, such as Atac, Sabina and Intrepid.

What strikes me at this juncture is the continued price appreciation of bullion but the stocks (especially the seniors) refuse to break out to new highs. I have pulled back the gold weight to be more in line with the sector weight while these stocks pause and consolidate within a range.

Much of the proceeds from selling gold stocks have found their way into the base metal and energy stocks.

I am still firmly in the camp that we will not have a double dip recession. I believe growth may be somewhat muted but still the economy will grow. Continued low rates and the federal reserve boards vigilance, on keeping the recovery on track by providing strong monetary stimulus will ensure continued growth.

Gold bullion has done particularly well within this back drop as the US dollar declined in September against all major currencies. Gold has taken on the characteristics of a safety trade for those fearing a double dip recession and a currency trade for those fearing a weakening US dollar.

Another more notable point that began occurring through the third quarter was an acceleration of copper inventory draw downs. Cancelled copper warrants also continued to increase, signalling a very tight supply and demand scenario for copper. It was finally at the end of the third quarter that investors began paying attention. Although copper may have attracted some investors because of the currency trade, the supply demand fundamentals of the red metal are solid. I feel most comfortable with my base metal overweight as it is more in keeping with my positive outlook for the global economies.

My view of the global economies ability to recover has left me somewhat nervous about golds short term. There is no inflation on the horizon and as some investors move from the safety trade to the growth trade, gold appears vulnerable. The risk to this scenario is that easy fed policy continues to drive the US dollar lower supporting gold despite the return to growth.

The energy sector has lagged as its fundamentals are more dominated by the western world economies. If economies begin to improve the energy sector will also begin to participate, as valuations are at extreme low levels.

At this juncture I am looking for some domestic related growth stocks such as technology and industrials to round out the funds positioning as we move to the last quarter of 2010.