EagleWing Research Newsletter on Gold Funds
January 1, 2002
GLOBAL WATCH
Comparing Funds | Comments
As the year closes out, specific economic happenings on a global scale are beginning to accumulate, which reflect the fragile state of international finance. Perhaps the largest shock was the default on national debt by Argentina, with no easy solution in sight. With the IMF and US watching, Argentina went through four presidents and the largest default in history, over $132 billion of debt at risk of not being honored by a sovereign nation. That amount of money will certainly affect the international currency markets within the next few months.
In Japan, the yen gave up over 6% in December to 131 yen/dollar with further down action being a distinct possibility. This has the potential for disrupting currency exchanges and trade agreements throughout the Far East and perhaps as far as the US and Europe. If China worries enough about trade and decides to disconnect from being pegged to the excessively strong dollar and match part of the yen's decline for trade purposes, their stash of dollars would be worth more and their trade would improve. Such a disconnect would be at the expense of the US economy and eventually the dollar.
The Enron bankruptcy seems to have been handled well so far, but because it was the largest in US history, it will certainly have repercussions on those stuck with debt that won't be covered. This problem will extend well into the next few months, perhaps years.
Over the past six months, in an effort to stimulate their respective economies, most central banks have flooded their currencies with extra money, in most cases at an annual rate over 10%. This policy on a national scale weakens just one currency, but on an international scale brings about worldwide inflation.
The euro currency became active in Europe as of the first of the year and large scale use should increase its importance and possibly value. As it's use is increased and accepted, the euro will offer some competition to the dollar as an international reserve currency.
The good news is that the US economy is showing signs of handling the recent recession and perhaps it won't last much longer. The Dow closed the month over 10,000 and the NASDAQ just under 2000. The eleven rate cuts for 2001 by the Federal Reserve from 6.50% to 1.75% are probably helping, but there isn't much more that rates can be cut. In the real world, the long bond rate for 30 year bonds closed the year at 5.47% with no sign of going much lower.
For December, the price of gold advanced from 273.9 to 278.7, reaching as high as 280.4. Silver, which had reached an eight year low in late November at 4.02, closed December at 4.57. That's a change of over 13% in one month. The XAU index rallied from 52.5 to 54.4 as oil dipped to 19.95 and the euro closed at .891.
COMPARING FUNDS
Global Watch | Comments
Funds ranked by percentage change in net asset value for December.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
10 MIDSX Midas Fund . 6.7 3.3 13.1 -30.1 -37.1
3 INPMX AXP Precious Metals A. 6.5 -0.2 5.9 -6.1 -6.1
17 TGLDX Tocqueville Gold . 6.1 7.1 21.3 8.2 31.7
21 INIVX Van Eck Intl Inv GoldA 5.9 0.4 20.2 -6.4 -18.0
6 SGGDX First Eagle SGen Gold. 5.4 -0.2 35.7 6.6 12.4
14 LEXMX Pilgrim Prec Metals A. 5.3 2.9 24.2 -3.3 5.0
2 BGEIX Amer Cent Global Gold. 5.0 0.6 32.5 0.9 -2.3
20 USAGX USAA Gold . 4.9 3.6 30.0 10.0 17.9
5 FSAGX Fidelity Select Gold . 4.6 5.0 23.0 0.8 9.2
18 USERX US Global Gold Shrs . 4.4 2.1 9.6 -23.1 -25.1
9 FGLDX INVESCO Strat Gold . 3.6 -0.6 17.1 -0.6 -9.5
7 FKRCX Franklin Gold A . 3.6 1.7 7.0 -2.2 22.2
19 UNWPX US Global World Gold . 3.6 1.7 7.5 -33.4 -41.9
8 GOLDX Gabelli Gold . 3.5 2.2 23.0 3.9 14.3
15 RYPMX Rydex Prec Metals . 3.3 -2.2 17.9
4 EKWBX Evergreen Prec Mtls B. 2.9 0.2 23.7 6.1 9.3
11 MNTGX Monterey OCM Gold . 2.1 -3.4 29.0 1.7 -0.8
16 SCGDX Scudder Gold . 2.1 -4.2 14.7 4.1 12.1
1 ASA ASA Ltd . 0.9 9.8 36.2 14.6 46.0
22 VGPMX Vanguard Gold/Pr Mtls. 0.4 2.8 12.8 4.3 34.3
12 OPGSX Oppenheimer Gold A . 0.2 0.7 14.1 -5.6 6.7
13 PRPFX Permanent Portfolio . -2.2 1.0 1.4 3.4 -1.4
The year ended on a positive note as almost all gold funds rallied, some near their 52 week highs. ALL WERE UP FOR THE YEAR. It is looking more and more like we saw the all-time low for gold last year in November.
The Position indicator gives the relative position of a fund between its 52 week high and low. Its high is represented by +100 and its low by -100.
fn Fund pos nav(12-31)
6 First Eagle SGen Gold. 93.6 6.27
20 USAA Gold . 91.8 6.58
21 Van Eck Intl Inv GoldA 88.1 5.35
2 Amer Cent Global Gold. 83.7 5.30
17 Tocqueville Gold . 83.2 13.83
5 Fidelity Select Gold . 78.9 14.81
14 Pilgrim Prec Metals A. 67.7 3.18
11 Monterey OCM Gold . 59.0 4.81
8 Gabelli Gold . 57.9 6.47
22 Vanguard Gold/Pr Mtls. 56.2 8.55
4 Evergreen Prec Mtls B. 47.9 12.26
9 INVESCO Strat Gold . 46.9 1.71
10 Midas Fund . 36.4 0.95
1 ASA Ltd . 33.3 20.00
19 US Global World Gold . 21.8 5.43
18 US Global Gold Shrs . 15.9 2.86
16 Scudder Gold . 15.7 6.87
15 Rydex Prec Metals . 9.5 21.06
12 Oppenheimer Gold A . 4.9 9.87
13 Permanent Portfolio . 3.4 18.41
7 Franklin Gold A . -6.8 9.43
3 AXP Precious Metals A. -8.0 5.38
All but two of these funds are above their 52 week averages, and many are taking a shot at their yearly highs.
The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of December 31) This is only an approximation as the size changes daily with new purchases, redemptions, and nav changes. Relative positions of the funds don't change much. The largest remain the largest.
fn fund assets
22 Vanguard Gold/Pr Mtls. 332
5 Fidelity Select Gold . 281
1 ASA Ltd . 192
2 Amer Cent Global Gold. 186
7 Franklin Gold A . 163
21 Van Eck Intl Inv GoldA 108
16 Scudder Gold . 98
12 Oppenheimer Gold A . 87
20 USAA Gold . 81
9 INVESCO Strat Gold . 64
13 Permanent Portfolio . 53
14 Pilgrim Prec Metals A. 51
19 US Global World Gold . 45
15 Rydex Prec Metals . 44
10 Midas Fund . 35
3 AXP Precious Metals A. 29
18 US Global Gold Shrs . 22
17 Tocqueville Gold . 22
8 Gabelli Gold . 13
11 Monterey OCM Gold . 12
6 First Eagle SGen Gold. 10
4 Evergreen Prec Mtls B. 6
The beta indicator measures the relative volatility of a fund's net asset value(nav) movement over 52 weeks as compared to the gold fund group average, 1.0. This number indicates volatility but does not specify the direction of movement, so it is only a measurement of relative activity of the fund.
fn fund beta
1 ASA Ltd . 1.53
11 Monterey OCM Gold . 1.19
2 Amer Cent Global Gold. 1.16
8 Gabelli Gold . 1.12
4 Evergreen Prec Mtls B. 1.10
15 Rydex Prec Metals . 1.10
6 First Eagle SGen Gold. 1.06
3 AXP Precious Metals A. 1.03
20 USAA Gold . 1.03
22 Vanguard Gold/Pr Mtls. 1.00
14 Pilgrim Prec Metals A. 0.97
5 Fidelity Select Gold . 0.97
16 Scudder Gold . 0.96
7 Franklin Gold A . 0.96
12 Oppenheimer Gold A . 0.94
18 US Global Gold Shrs . 0.94
17 Tocqueville Gold . 0.92
9 INVESCO Strat Gold . 0.91
21 Van Eck Intl Inv GoldA 0.83
19 US Global World Gold . 0.72
10 Midas Fund . 0.69
13 Permanent Portfolio . 0.25
The beta for each fund changes monthly as the fund advances and declines, but the relative position on the ladder doesn't change much, except as a reference to other funds. As you can see, there is a big difference between management policies of different funds.
The high beta of ASA over the past three months can be attributed partially to the declining currency of South Africa, the rand, and its effect upon the South African mining stocks, many of which are held by ASA.
*** Funds that diversify with government treasuries, bullion or natural resource stocks generally have a lower beta and are less volatile compared to a portfolio concentrating on small capitalization mining companies.
INVESTING COMMENTS
Global Watch | Comparing Funds
During November, Midas Investors Fund (MIDIX) merged into Midas Fund (MIDSX), eliminating one more fund to watch. MIDSX then turned out to be the top fund for December.
The merging of major international mines continued as Homestake (HM) stopped trading in December as it was taken over by Barrick Gold Corp (ABX). In addition, Newmont Mining (NEM) and AngloGold (AU) of South Africa were still making increasingly higher offers for Australia's Normandy Mining Ltd (NDY.AX, NDY.TO). Part of the bidding is an offer by Newmont to buy Canada's Franco-Nevada Mining Corp. Ltd. (FN.TO). The combined deal would be worth over $4 billion and make NEM the largest gold miner in the world. It's interesting that NEM stock slipped for the month.
With the large infusion of new money by central bankers, paper money has already been producing higher gold prices in most currencies. The U.S. has also been pumping money and credit into the economy in addition to at least a $40 billion stimulus package that hasn't even been passed by the Congress yet. As the Argentina peso and Japanese yen roll over the edge, the dollar seems to be the only currency holding up, perhaps by default.
After the introduction of the euro as a more credible international reserve currency, the dollar will no longer be the only one in which central bankers can invest. Expect to see a closed door battle in currency markets between euro supporters in Europe and dollar supporters in the U.S. Treasury Department.
The Bush administration recently requested that the debt limit be raised to allow for the expected new borrowings needed in the next few years. So much for the much publicized budget surpluses. Will investors be interested in buying U.S. debt as much as they have in the past? Keep an eye on the 10 year and 30 year bond rates to see the market's valuation of these bonds, a direct indication of the international investor's willingness to stay with the dollar. To most of us, gold is priced in dollars, and the $255-293 range has held for two years as the dollar remained strong. A weaker dollar can produce price movement in only one direction.
|