Euan Leckie and Greg Foulis, managers of the top-performing Scudder Gold & Precious Metals Fund, expect to add to their gains with the help of President Bush.

Bush's tax cuts and military spending helped turn a record budget surplus into a record deficit, causing the U.S. dollar to drop and gold prices to rise, Leckie said in an interview from his office at Deutsche Asset Management in Sydney. His reelection represents a "continuation of the policy of large budget deficits," Leckie said.

"That's an overall positive environment for gold," said Leckie, 59, who received a geology degree from the University of Tasmania in 1966. His mutual fund had 88 percent of its assets in gold-mining stocks at the end of September.

The $545.5 million Scudder fund rose at an average annual rate of 27.2 percent during the past five years, the best performance of 22 gold funds tracked by Bloomberg.

Leckie and Foulis, 43, search for mining companies that can increase production and reserves at below-average costs. The approach, which Foulis calls "valuation geology," led them to Placer Dome Inc., Canada's second-largest gold miner, and Ivanhoe Mines Ltd., a Vancouver-based company that is developing a copper and gold mine in Mongolia.

Shares of Placer Dome, the fund's biggest holding, more than doubled since Bush's 2001 inauguration. Gold climbed 64 percent in the same period, closing at $437.90 on Friday.

The U.S. budget deficit swelled to $412.3 billion in the 12 months ended Sept. 30, as costs rose to finance the war in Iraq and homeland security. Before Bush took office, the country had a record surplus of $236.4 billion.

Gold reached a 16-year high of $438.30 an ounce last week. The dollar is down 1.1 percent against the euro since Bush was reelected and down 12.3 percent during the past 12 months. A declining dollar makes gold, which is denominated in the U.S. currency, less costly for holders of other currencies and boosts its attraction as a hedge against declines in U.S. assets.

Bush said during his first press conference after winning reelection that he will press ahead with the war on terrorism and make permanent his $1.85 trillion of tax cuts.

"Gold will test $500 an ounce next year," said Frank Holmes, whose firm manages the U.S. Global Investors World Precious Minerals Fund, the best-performing gold fund since Bush took office. "The dollar will be under pressure for many years."

Leckie is less sanguine. At a 16-year high, gold prices are "delicately poised," he said. "We could see $450 without a problem next year."

Shares of gold-mining companies have struggled this year because of increasing production costs, said Victor Flores, an analyst at HSBC Securities Inc. in New York. The American Stock Exchange's Gold Miners Index has declined 2.7 percent and the Scudder Fund has dropped 3.7 percent. The U.S. Global fund was up 1 percent.

"People are concerned that fuel and energy costs keep rising," said Flores, who also expects gold to reach $450 an ounce next year.

Leckie and Foulis focus on mining companies with shares that are trading at a discount to the value of their mines.

"We look at the cost structure, potential production schedules and the estimated life of the mine and then ask: Is this an undervalued asset?" said Foulis, who received a degree in geology from New South Wales Institute of Technology in 1984. Foulis worked as a geologist for eight years before becoming a gold analyst at Deutsche Bank Securities Inc. in 1992.

Leckie and Foulis increased their stake in Placer Dome to 8.1 percent of assets on Sept. 30, from 4.5 percent a year earlier. The stock traded for 2.1 times the value of its mines, excluding debt, on Oct. 27, according to analysts at Credit Suisse First Boston. That's 17 percent less than Newmont Mining Corp., CSFB said in a report. Shares of Placer Dome are up 23 percent this year, compared with a decline of 0.3 percent for Newmont. Placer Dome shares closed Friday at $22.30 each and Newmont's stock ended the week at $49.68 per share on the New York Stock Exchange.

The Scudder fund bought shares of Ivanhoe in April 2002 when the company sold shares at $2.73. Proceeds from the sale were used for the Turquoise Hill mine in Mongolia near the Chinese border. Leckie's co-manager at the time, Darko Kuzmanovic, visited the site twice before buying shares. Kuzmanovic has since joined Dallas-based David W. Tice & Associates, where he works as an analyst.

Ivanhoe surged almost five-fold to a record $12.70 on Nov. 3, 2003, as the company reported that its open-pit mine may hold the world's fifth-largest copper and gold reserves. The gain made Ivanhoe the fund's largest holding last year, at one point accounting for more than 10 percent of assets.

Leckie said he started reducing the fund's holdings in Ivanhoe during the fourth quarter of 2003. The fund sold all its shares by June, according to filings with the U.S. Securities and Exchange Commission, after Ivanhoe's production forecasts fell short of Leckie's estimates.

He's now betting on Crystallex International Corp., a stock he first bought in the fourth quarter of 2003. It's now the fund's fourth-largest holding. Shares of the owner of Venezuela's biggest gold deposit rallied 58 percent in the past three months, as the company released results of drilling tests at its Las Cristinas mine, which has proven and probable reserves of 12.8 million ounces. Crystallex's stock closed Friday at $4.40 per share on the American Stock Exchange.

"It's not easy to find 12 million ounces of gold in one lump that has not yet been developed," said Leckie, whose office is dotted with rocks from the mines he has visited.