EagleWing Research Newsletter on Gold Funds
February 1, 2002
GLOBAL WATCH
Comparing Funds | Comments
In the international arena, the situation in Argentina and its debt problem has shown little improvement. A government decision was made to default on most of its external debt and to pay domestic dollar deposits with devalued pesos. The default will, however, effect future debt negotiations between countries and relationships with the IMF. An excessively strong dollar will continue to be a factor in any debt arrangement since many are based on dollars.
In Japan, government policy allowed the yen to slide to another three year low, exceeding 134 yen/$ in an effort to eliminate domestic deflation and help the Japanese economy recover from a ten year recession. Further weakening of the yen, however, will certainly bring a critical response from Japanese trading partners in the Far East, such as China, Taiwan, and South Korea. If necessary, in their view, these countries could enter into a devaluation contest to maintain trading relationships, leaving the dollar and the euro as the only currencies holding their own.
The euro, however, has been weakening since its short term enthusiasm in January raised it to $.902, and closed January at a sliding .865. If the euro doesn't get a grip, that will leave the dollar as the only reasonable reserve currency. Numerically, as all others get weaker, the dollar continued its march to a higher dollar index number, passing upward through 120.
After the Enron bankruptcy, the major collapse of Global Crossing came as a minor shock. Politically, the Enron situation has already begun to stir up debate, and now the Global Crossing collapse may join the discussion. These would not be significant except for their size and their effect upon the assets of ordinary citizens/voters brought on by what looks like illegal activities.
The Federal Reserve decided last week to not lower the short term rate, the first time it wasn't lowered in almost a year and sending a signal to the market that in their opinion a recovery may be beginning. This is of course, good news to most of us, and I think will be good for the price of gold also. The Dow Industrials rallied but still closed under 10,000 at 9920.
A factor which became more obvious in December was the falling currency in South Africa, the rand. Due to many reasons, the rand fell to a low of 13.5/$ in December and ended January at 11.5. This made mines in that country profitable, increasing their share prices, and increasing the the asset values of all gold funds investing in South African stocks.
For the month of January, 15 gold funds and gold equities jumped to new 52 week highs across the board. Gold gained only slightly from 278.7 to 282.1, a meager $4.40 (1.2%) while the XAU index surged from 54.4 to 61.3 (+12%). On the other hand, silver gave up most of its recent advances, falling from 4.57 to 4.21 (-8%).
COMPARING FUNDS
Global Watch | Comments
Funds ranked by percentage change in net asset value for January.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
18 USERX US Global Gold Shrs . 18.2 22.5 31.0 3.4 -7.4
6 SGGDX First Eagle SGen Gold. 17.5 19.4 56.1 36.7 30.2
19 UNWPX US Global World Gold . 17.5 21.1 27.6 -11.9 -28.7
11 MNTGX Monterey OCM Gold . 16.4 15.2 49.7 33.0 17.6
17 TGLDX Tocqueville Gold . 15.8 22.3 39.3 36.3 54.9
8 GOLDX Gabelli Gold . 15.6 19.1 42.2 35.3 34.8
21 INIVX Van Eck Intl Inv GoldA 14.0 18.9 36.8 19.6 -3.6
2 BGEIX Amer Cent Global Gold. 14.0 16.6 52.5 31.7 13.1
15 RYPMX Rydex Prec Metals . 13.5 14.3 32.9
4 EKWBX Evergreen Prec Mtls B. 13.3 15.3 40.9 32.4 26.0
20 USAGX USAA Gold . 13.2 19.8 49.3 38.5 35.7
5 FSAGX Fidelity Select Gold . 12.6 20.5 39.8 28.9 26.6
9 FGLDX INVESCO Strat Gold . 11.7 13.7 31.7 18.6 3.8
14 LEXMX Pilgrim Prec Metals A. 11.3 16.1 37.2 20.8 17.6
3 INPMX AXP Precious Metals A. 9.9 15.7 15.7 16.3 5.5
1 ASA ASA Ld . 9.8 17.8 38.3 36.0 47.8
10 MIDSX Midas Fund . 9.5 18.2 23.8 -4.6 -28.3
12 OPGSX Oppenheimer Gold A . 8.9 11.6 23.6 10.7 17.1
22 VGPMX Vanguard Gold/Pr Mtls. 8.9 12.0 24.0 24.6 46.2
16 SCGDX Scudder Gold . 8.9 9.5 22.8 23.2 24.0
7 FKRCX Franklin Gold A . 7.7 13.0 13.1 13.1 31.9
13 PRPFX Permanent Portfolio . 1.0 -2.0 1.5 6.5 -0.6
While the price of gold gained slightly, many of these funds gained at record levels. Over the past two years almost all have gained, and many over the past three year period. In 2001, the gold funds area was the leading sector of mutual funds.
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(1-31)
2 Amer Cent Global Gold. 100.0 6.04
4 Evergreen Prec Mtls B. 100.0 13.89
8 Gabelli Gold . 100.0 7.48
9 INVESCO Strat Gold . 100.0 1.91
14 Pilgrim Prec Metals A. 100.0 3.54
10 Midas Fund . 100.0 1.04
11 Monterey OCM Gold . 100.0 5.60
6 First Eagle SGen Gold. 100.0 7.37
18 US Global Gold Shrs . 100.0 3.38
19 US Global World Gold . 100.0 6.38
20 USAA Gold . 100.0 7.45
21 Van Eck Intl Inv GoldA 100.0 6.10
22 Vanguard Gold/Pr Mtls. 100.0 9.31
17 Tocqueville Gold . 100.0 16.02
5 Fidelity Select Gold . 100.0 16.68
15 Rydex Prec Metals . 85.8 23.90
1 ASA Ld . 72.6 21.95
16 Scudder Gold . 70.6 7.48
12 Oppenheimer Gold A . 61.8 10.75
3 AXP Precious Metals A. 48.7 5.91
7 Franklin Gold A . 40.7 10.16
13 Permanent Portfolio . 23.9 18.59
All of these are well above their yearly averages, and 15 set a new 52 weak high on January 31.
The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of January 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. 362
5 Fidelity Select Gold . 316
2 Amer Cent Global Gold. 212
1 ASA Ld . 211
7 Franklin Gold A . 176
21 Van Eck Intl Inv GoldA 123
16 Scudder Gold . 107
12 Oppenheimer Gold A . 95
20 USAA Gold . 92
9 INVESCO Strat Gold . 71
14 Pilgrim Prec Metals A. 57
13 Permanent Portfolio . 54
19 US Global World Gold . 53
15 Rydex Prec Metals . 50
10 Midas Fund . 38
3 AXP Precious Metals A. 32
18 US Global Gold Shrs . 26
17 Tocqueville Gold . 25
8 Gabelli Gold . 15
11 Monterey OCM Gold . 14
6 First Eagle SGen Gold. 12
4 Evergreen Prec Mtls B. 7
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 price of the fund.
fn fund beta
6 First Eagle SGen Gold. 1.43
2 Amer Cent Global Gold. 1.36
11 Monterey OCM Gold . 1.31
20 USAA Gold . 1.26
8 Gabelli Gold . 1.23
17 Tocqueville Gold . 1.19
5 Fidelity Select Gold . 1.09
21 Van Eck Intl Inv GoldA 1.08
4 Evergreen Prec Mtls B. 1.04
15 Rydex Prec Metals . 0.95
18 US Global Gold Shrs . 0.95
1 ASA Ld . 0.94
22 Vanguard Gold/Pr Mtls. 0.93
14 Pilgrim Prec Metals A. 0.93
9 INVESCO Strat Gold . 0.90
3 AXP Precious Metals A. 0.90
7 Franklin Gold A . 0.83
19 US Global World Gold . 0.83
12 Oppenheimer Gold A . 0.81
16 Scudder Gold . 0.77
10 Midas Fund . 0.65
13 Permanent Portfolio . 0.22
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.
*** 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
The leader for the month was U.S. Global Investors Gold Fund (USERX), usually found in the other half of the fund list. Welcome to the top.
The surge of the gold funds sector is directly due to advances in gold equities, which have moved up seemingly independent of the price of gold. This is not the full story, however. The market is telling us that there is a not-so-well-hidden force building up that is supporting gold equities even as gold barely moves. Someone obviously thinks that gold will soon break out of the price range it is in and equities are already leading the way. This happened in 1993 when most gold funds doubled. It also has happened several times since when gold and gold funds didn't do anything. Therefore, it is not a perfect indicator that the rally in funds will continue.
The factor I see this time is that the price of gold is inversely relative to the strong dollar, and when the dollar weakens, gold will respond. This has been the case for over a year. Today, however, the price of gold has been going up in almost all other currencies as they are allowed to devalue, such as the yen. Only the dollar remains.
The advance in the dollar is being accomplished in the face of continuously large trade deficits, the latest being a relatively low $27 billion, sucking American cash overseas so that foreign investors can either buy our assets with dollars or loan us the money back as future debt. Historically, this has always been a bad thing for a currency, and it will eventually be for the dollar. I fail to see how this can be a national policy for much longer.
Capitalism is built on free enterprise and the creation and destruction of businesses, but transition must be done within limits where the rest of the financial structure can handle the change. The recent series of debt defaults and losses in Argentina and Enron will eventually have a cost to all of those debt holders such as banks, pension funds and insurance companies who depend upon the assets. The size and intensity of the these recent events are going to pressure the system much more than before and I suspect put pressure on the evaluation of the dollar by investors.
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