EagleWing Research Newsletter on Gold Funds
February 1, 1999
GLOBAL WATCH
Comparing Funds | Comments
U.S. precious metals prices in January were influenced primarily by fluctuations in the value of the dollar as conflicts in currency management became more obvious worldwide. The month ended with the World Economic Forum opening in Davos, Switzerland with currency problems being a major topic for discussion.
Following the series of devaluations over the past twenty months, beginning with Thailand and the latest being Brazil, many trade relationships are becoming increasingly strained. In Brazil, the currency flow out of the country was slowed by the devaluation, which initially hurt the dollar. However, since European banks have more loans with Brazil than the U.S. does, the dollar began to show strength against the euro, which started the new year at 1.18, and ended the month at 1.15.
The U.S. long term bond interest rate, inversely representing the value of the dollar, climbed early in the month to above 5.30% as gold rallied, but ending back down at 5.08% as gold fell. This coincided with the reversal in the dollar in yen terms from its 28 month low at 108 yen back to a monthly high above 116.
The presidential impeachment trial initially put pressure on the dollar but reversed when it became apparent that President Clinton would not be removed unless there is new evidence. As the month ended, he seemed to be safe and the dollar regained strength.
Although many Asian economies are starting to recover, their positive effect is still small compared to the larger problems associated with Japan and China. Japan is still stuck in a deflationary recession, and their recent trade surplus, half of which is with the U.S., shows that they are depending upon the rest of the world to buy their products and pull them out. The Chinese restated their intention not to devalue the yuan, but many traders were willing to test the situation. The Chinese are now our largest deficit trading partner, contributing to a U.S record trade deficit in November of over $15 billion, with no end in sight to higher records. A devaluation by China would increase our deficit with them even more, along with another flight to safety in the dollar.
Gold started the year in a short rally at 288.1, climbed further to 293.0 and closed at 286.3 after briefly dropping back to 283.4. Silver moved from 4.92 directly into a rally, reaching 5.32 before closing at 5.22. Many stocks made decent moves following XAU, which began at 64.9, climbed to 74.9, gave up all gains by falling back to 61.6 and finally closing at 63.2. Most gold stocks gave up their rally gains and closed the month in a slightly oversold condition. The price of gold in dollars peaked on January 11, just before the dollar was supported by the Japanese, and the impeachment results began to firm in Clinton's favor.
COMPARING FUNDS
Global Watch | Comments
The following table shows funds ranked by percentage change in nav during January.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
1 ASA ASA Ltd . 8.4 -17.1 -25.1 -45.8 -59.0
13 STSLX Lexington Strat Silver 2.2 -3.8 -25.2 -34.0 -39.7
23 SGGDX SoGen Gold . 1.4 -11.6 -18.6 -39.7 -49.4
12 STIVX Lexington Strat Invest 0.9 -15.5 -14.8 -48.0 -63.0
19 PRPFX Permanent Portfolio . 0.2 1.9 2.5 10.2 10.8
4 BBGIX Bull and Bear Gold Inv 0.0 -7.8 -27.7 -68.7 -73.9
30 VGPMX Vanguard Spec Gold . -0.0 -5.9 -11.2 -37.7 -50.4
8 FKRCX Franklin Gold I . -0.3 -8.1 -13.7 -38.5 -48.8
11 LEXMX Lexington Goldfund . -0.7 -9.9 -13.8 -43.1 -51.7
17 OPGSX Oppenheimer Gold A . -0.8 -3.2 -6.4 -30.6 -36.0
26 USAGX USAA Gold . -1.6 -3.2 -6.5 -35.0 -48.7
22 SCGDX Scudder Gold . -1.6 -5.3 -20.8 -48.8 -45.5
5 EKWBX Evergreen Prec Mtls B. -1.8 -4.8 -20.5 -43.9 -52.7
15 MNTGX Monterey OCM Gold . -1.9 -9.0 -12.3 -39.7 -29.0
9 GOLDX Gabelli Gold . -1.9 -8.0 -14.6 -52.6 -58.3
18 PPMCX PIMCO Adv Prc Mtls C . -2.0 -13.0 -20.3 -52.0 -63.7
16 METBX Morgan St DW Prc Mtls. -2.1 -5.8 -20.8 -49.7 -58.5
20 PIGDX Pioneer Gold A . -2.1 -9.4 -15.3 -42.1 -52.4
3 INPMX Amer Exp IDS Prc Mtl A -2.3 -1.8 -14.6 -51.3 -49.1
10 FGLDX INVESCO Strat Gold . -2.6 -3.2 -27.0 -64.7 -61.0
6 FSAGX Fidelity Sel Gold . -2.8 -0.1 -15.9 -43.6 -45.0
21 RYPMX Rydex Prec Metals . -2.8 -16.1 -17.2 -45.1 -56.8
29 INIVX Van Eck Intl Inv GoldA -3.0 -6.8 -17.9 -41.6 -58.4
7 FDPMX Fidelity Sel Prec Mtls -3.0 0.2 -11.9 -44.1 -53.4
2 BGEIX Amer Cent Global Gold. -3.1 -14.4 -19.9 -47.4 -59.2
28 GRFRX Van EckGold / Res A . -3.9 -9.0 -19.6 -45.5 -55.2
14 EMGSX Midas Fund . -4.0 -11.0 -33.8 -70.3 -71.7
27 UNGGX United Gold / Govt . -4.2 -7.5 -14.6 -31.7 -34.8
25 UNWPX US Global World Gold . -4.3 -8.1 -25.8 -49.7 -51.2
24 USERX US Global Gold Shrs . -4.5 -9.0 -36.0 -69.9 -83.4
For most gold stocks, the rally at the beginning of January didn't hold and caused most of the funds to lose value for the month. ASA's value is not a true nav and is affected by market forces more than other funds. By comparing ASA to Rydex Precious Metals (RYPMX), a fund which follows the XAU average similar to an index, it can be concluded that ASA was undervalued during December's market slide and now looks good compared to that unusually low value. Over the last three months, ASA has had very poor results.
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 symbol Fund pos nav
17 OPGSX Oppenheimer Gold A . 11.8 9.18
26 USAGX USAA Gold . 11.8 5.49
7 FDPMX Fidelity Sel Prec Mtls 8.8 9.58
6 FSAGX Fidelity Sel Gold . 1.4 13.26
3 INPMX Amer Exp IDS Prc Mtl A -9.1 5.60
15 MNTGX Monterey OCM Gold . -11.3 4.76
9 GOLDX Gabelli Gold . -16.5 5.55
20 PIGDX Pioneer Gold A . -16.5 4.15
30 VGPMX Vanguard Spec Gold . -16.6 6.61
8 FKRCX Franklin Gold I . -18.7 7.70
11 LEXMX Lexington Goldfund . -20.3 3.01
19 PRPFX Permanent Portfolio . -24.7 18.71
16 METBX Morgan St DW Prc Mtls. -25.4 4.72
28 GRFRX Van EckGold / Res A . -28.8 2.92
5 EKWBX Evergreen Prec Mtls B. -29.1 11.02
2 BGEIX Amer Cent Global Gold. -29.7 5.43
10 FGLDX INVESCO Strat Gold . -31.4 1.84
21 RYPMX Rydex Prec Metals . -32.2 4.44
22 SCGDX Scudder Gold . -32.8 6.03
29 INIVX Van Eck Intl Inv GoldA -32.8 6.39
18 PPMCX PIMCO Adv Prc Mtls C . -36.1 4.83
12 STIVX Lexington Strat Invest -38.7 1.09
25 UNWPX US Global World Gold . -39.6 8.98
13 STSLX Lexington Strat Silver -46.9 2.79
1 ASA ASA Ltd . -49.5 16.87
24 USERX US Global Gold Shrs . -50.3 3.65
14 EMGSX Midas Fund . -57.0 1.45
27 UNGGX United Gold / Govt . -60.0 5.90
23 SGGDX SoGen Gold . -75.9 5.66
4 BBGIX Bull and Bear Gold Inv -92.4 2.82
Only a few funds are above their 52 week average (0) due to this latest decline, but still fewer are lingering near their lows.
My in-house beta measures the relative percentage movement of a fund's NAV over 52 weeks as compared to the 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 NAV.
fn Fund beta
10 INVESCO Strat Gold . 1.32
14 Midas Fund . 1.30
6 Fidelity Sel Gold . 1.27
24 US Global Gold Shrs . 1.25
7 Fidelity Sel Prec Mtls 1.23
1 ASA Ltd . 1.21
5 Evergreen Prec Mtls B. 1.20
2 Amer Cent Global Gold. 1.19
20 Pioneer Gold A . 1.19
16 Morgan St DW Prc Mtls. 1.12
26 USAA Gold . 1.12
21 Rydex Prec Metals . 1.10
28 Van EckGold / Res A . 1.09
9 Gabelli Gold . 1.08
25 US Global World Gold . 1.07
22 Scudder Gold . 1.03
29 Van Eck Intl Inv GoldA 1.00
17 Oppenheimer Gold A . 1.00
15 Monterey OCM Gold . 1.00
3 Amer Exp IDS Prc Mtl A 0.98
18 PIMCO Adv Prc Mtls C . 0.96
8 Franklin Gold I . 0.91
12 Lexington Strat Invest 0.88
30 Vanguard Spec Gold . 0.87
4 Bull and Bear Gold Inv 0.86
11 Lexington Goldfund . 0.85
13 Lexington Strat Silver 0.79
23 SoGen Gold . 0.66
27 United Gold / Govt . 0.49
19 Permanent Portfolio . 0.11
*** 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.
For most funds, this relative number has become much less extended, meaning that the adventuresome funds are remaining within smaller and more stable trading ranges. It indicates that the funds may be establishing a base and is a very good sign for the future. Most lows were set last August and most fund values are holding well above them.
The following chart shows the approximate size of funds as measured in total assets under management. (As of January 29) 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.
fn Fund assets ($mil)
30 Vanguard Spec Gold . 334
2 Amer Cent Global Gold. 245
6 Fidelity Sel Gold . 208
8 Franklin Gold I . 200
29 Van Eck Intl Inv GoldA 172
1 ASA Ltd . 161
7 Fidelity Sel Prec Mtls 142
22 Scudder Gold . 118
25 US Global World Gold . 101
10 INVESCO Strat Gold . 95
14 Midas Fund . 91
26 USAA Gold . 91
17 Oppenheimer Gold A . 80
19 Permanent Portfolio . 68
11 Lexington Goldfund . 56
3 Amer Exp IDS Prc Mtl A 50
28 Van EckGold / Res A . 49
24 US Global Gold Shrs . 36
13 Lexington Strat Silver 29
16 Morgan St DW Prc Mtls. 27
23 SoGen Gold . 27
5 Evergreen Prec Mtls B. 24
21 Rydex Prec Metals . 24
12 Lexington Strat Invest 22
20 Pioneer Gold A . 20
18 PIMCO Adv Prc Mtls C . 13
9 Gabelli Gold . 12
27 United Gold / Govt . 12
4 Bull and Bear Gold Inv 7
15 Monterey OCM Gold . 1
Most of these funds have lost 50% of their assets under management since last year due to decreasing values and redemptions. Compared to some of the internet stock valuations, it would not take much of an investment to buy all of these.
INVESTING COMMENTS
Global Watch | Comparing Funds
The net asset value (nav) of a gold fund is calculated from the values of equities in the portfolio, and these equities are closely related to the price of gold as well as other factors. Therefore, international events and economic policies which affect the price of gold have a direct influence upon fund values. Because there are a multitude of factors which influence these policies and events, it becomes dangerous to label one factor or the other as the most important, and during the year, the influence of each factor changes, depending upon other events. In other words, the whole picture must be considered and analyzed continually because the influential weight of each individual factor changes often.
Some indicators provide relatively accurate short term trends such as a change in the U.S. long bond (30 year) interest rate, which is a direct result of the auction trading of the bond and inversely related to demand for U.S. debt. A flight to the dollar as created when most nations devalued in the past 10 years causes a lower long bond interest rate and a lower price of gold. Eventually this overextends and then reverses into a rally.
While a major currency devaluation may throw a local economy into recession, it promises hope with increased exports to buying countries, primarily the U.S. Both Europe and Japan maintained trade surpluses for 1998, putting pressure on the U.S. to buy everyone else's products, and neither appears to want to reverse their policies. This means that our trade deficit, now approaching $300 billion per year, will not decrease unless we initiate protective trade policies, which the Clinton administration will not do. Therefore, expect larger trade deficits until the flow of dollars overseas becomes grossly excessive and the demand for the dollar falls. At that time, whenever it is, the price of gold will take off. Meanwhile, flights of panic to the safety of the dollar will cause gold to fall.
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