Although morningstar gives it a Gold rating, I was disappointed to discover (see p. 14 of 2012 annual report) that the # of stocks comprising the fund is only 45. Comapre it to 424 stocks that comprise S&P Precious Metals and Mining Index. Also only about 60% of the fund is invested in gold stocks. From p.5:
At the end of the 12 months, gold-oriented stocks accounted for about 56% of the fund’s assets and had contributed about 2.3 percentage points to the overall return.
I also looked at websites of the top holdings.

1. Hochschild Mining plc – ok this is a gold mining company
2. Potash Corp. of Saskatchewan Inc. – this is not a gold mining company. Guess what is this company’s product? fertilizers
3. K+S AG – another fertilizers company
4. Umicore SA – ok this is a materials company

Have you heard the name of one single company in above list?

This is a different class of fund altogether. This fund is for people who want to play a high-stakes game; those who have strong conviction in performance of a handful of mid-cap companies selected by fund’s management. The companies comprising the fund also change quickly from year to year as reflected by the 33% turnover. On the face of it, this fund stands against the principles of diversification, investing in an index fund, etc. but if you wanted to gamble with a small amount of money and take a chance, then this might be it.
Conclusion: It is very important to look at big picture, and trust what your own common sense tells you.

Looking Back: After more than 10 years of investing in this fund, I came across this article: How I Found a Top-Performing Vanguard Fund by Accident. For the longest time, this fund was amongst the worst performers in my portfolio. It has only appreciated recently due to the surge in gold. Looking back I would say its better to invest in a gold ETF like IAU vs. this fund.