EagleWing Research Newsletter on Gold Funds
March 1, 2001
GLOBAL WATCH
Comparing Funds | Comments
February didn't see another interest rate decrease by the Federal Reserve, but there were plenty of thoughts about one. The markets are expecting one soon as the NASDAQ reached a two year low, closing at 2151, down over 50% from its all-time high reached last spring. For 2001, the NASDAQ is down 18% including a gain of 12% in January. Most other markets have been weak, including Japan, which dropped to new lows also. The U.S. confidence level has been dropping as layoffs make the news for the first time in years. This is a leading indicator of a possible recession.
The largest new international problem surfacing in February and promising to create some financial instability was a currency crisis in Turkey, where at least one bank had folded after the lira was allowed to float downward (devalue) over 30% with interest rates over 1000% and inflation over 30%. This collapse followed a major investment boom over the past two years which turned into a bubble and has now burst. The obvious fear is that this could spread to other financial markets in Europe as it did in Asia in 1997. As you may remember, the 1997 Asian crisis spread to several countries before concluding, and it also caused gold to fall substantially as citizens sold their personal savings, which included much gold. Gold is much more a method of personal savings in Asia than Europe, so that might not be replicated in this new situation.
The U.S. trade deficit in December came in at $33 billion, slightly below the previous $34 billion, but part of another annual deficit record of almost $1 billion per day. Meanwhile the national money supply increased as new cash placed into money market mutual funds exploded to new highs. The official savings rate was negative as massive home mortgage refinancing freed up cash for investing by increasing debt.
For the month, gold jumped from 265.6 to over 268 before falling to test its twenty year low near 255 then rallying the last week to close at 266.8. Silver fell from 4.79 to 4.40 before closing at 4.47. The price of oil tried to get back over $30, but closed the month at barely over $27. With oil coming down from the recent peak, interest rates dropping, and markets going down, it's hard to justify a case for inflation.
The U.S. dollar index climbed slightly from 110.3 to just over 112 halting a dollar slide since October and indicating that this latest gold rally may not last long. Concurrently, the euro was down proportionately from .936 to .923. The long bonds rallied enough to send the long bond interest rate down from 5.52% to 5.34%, below the Fed's short term target, and enough to encourage another Fed interest rate drop. While the next scheduled meeting is not until March 20, there are indications that the Fed may do something before that.
COMPARING FUNDS
Global Watch | Comments
Funds ranked by percentage change in net asset value for February.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
1 ASA ASA Ltd . 16.1 16.6 -5.0 9.6 -12.5
17 RYPMX Rydex Prec Metals . 8.7 16.7
4 EKWBX Evergreen Prec Mtls B. 7.1 9.9 -4.7 -8.7 -25.3
6 SGGDX First Eagle SGen Gold. 6.8 10.4 -10.8 -12.2 -27.5
2 BGEIX Amer Cent Global Gold. 6.3 7.5 -17.0 -27.4 -38.8
12 MNTGX Monterey OCM Gold . 6.1 12.8 -8.5 -16.6 -27.4
18 SCGDX Scudder Gold . 5.9 -22.5 -27.7 -28.4 -42.9
13 OPGSX Oppenheimer Gold A . 5.4 11.9 -3.3 -1.3 -6.0
10 MIDSX Midas Fund . 4.8 5.5 -24.8 -44.0 -62.1
15 LEXMX Pilgrim Goldfund . 4.7 0.5 -18.1 -20.5 -29.4
8 GOLDX Gabelli Gold . 4.6 14.1 0.5 -0.9 -12.4
7 FKRCX Franklin Gold A . 4.5 -0.5 -5.7 5.2 -8.8
22 USAGX USAA Gold . 4.4 12.3 -4.1 -5.3 -9.8
25 VGPMX Vanguard Gold/Pr Mtls. 4.1 3.8 3.8 11.2 2.5
5 FSAGX Fidelity Select Gold . 3.8 11.7 -9.7 -8.4 -20.0
19 TGLDX Tocqueville Gold . 3.7 12.7 0.5 15.4 19.3
24 INIVX Van Eck Intl Inv GoldA 3.6 0.3 -17.5 -34.5 -44.6
11 MIDIX Midas Investors . 3.0 -25.5 -39.0 -52.2 -66.9
23 GRFRX Van Eck Gold / Res A . 3.0 16.2 1.7 -16.4 -31.7
9 FGLDX INVESCO Strat Gold . 2.8 -18.6 -34.9 -41.6 -55.8
20 USERX US Global Gold Shrs . 2.3 0.9 -26.4 -33.6 -54.3
3 INPMX AXP Precious Metals A. 0.6 5.1 -6.9 -12.4 -24.2
16 STSLX Pilgrim Silver . 0.0 6.4 -21.5 -20.7 -43.1
14 PRPFX Permanent Portfolio . -0.2 -4.4 -4.0 -8.0 -7.1
21 UNWPX US Global World Gold . -0.2 -0.9 -36.3 -47.6 -59.7
With all of the fluctuations this month, ASA continued to advance, especially the last few days of the month. The gap between ASA and the rest of the funds is an obvious sign of the recent difference in movement in South African equities and North American, and historically has been a leading indicator for a strong move in precious metals. However, this has not been an exact signal, with many false alarms, so keep that in mind.
This month saw most stocks increase in value, but there is still a big difference in investment results between funds, and this chart shows it clearly.
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(2-28)
18 Scudder Gold . 58.8 6.45
1 ASA Ltd . 46.5 19.05
25 Vanguard Gold/Pr Mtls. 46.4 7.82
14 Permanent Portfolio . 39.6 18.28
7 Franklin Gold A . 30.6 9.38
4 Evergreen Prec Mtls B. 25.4 10.56
17 Rydex Prec Metals . 17.9 19.55
19 Tocqueville Gold . 13.0 11.93
8 Gabelli Gold . 8.6 5.50
22 USAA Gold . 7.7 5.21
3 AXP Precious Metals A. -5.7 5.14
23 Van Eck Gold / Res A . -5.7 2.44
15 Pilgrim Goldfund . -12.7 2.70
13 Oppenheimer Gold A . -13.0 9.17
5 Fidelity Select Gold . -13.9 12.38
2 Amer Cent Global Gold. -14.1 4.21
12 Monterey OCM Gold . -16.0 3.97
9 INVESCO Strat Gold . -23.1 1.49
11 Midas Investors . -23.7 2.05
6 First Eagle SGen Gold. -25.8 5.04
24 Van Eck Intl Inv GoldA -29.8 4.62
20 US Global Gold Shrs . -54.2 2.64
10 Midas Fund . -57.4 0.88
16 Pilgrim Silver . -59.6 2.24
21 US Global World Gold . -77.0 4.99
No fund has set a new low since November and this chart demonstrates that since then all are up substantially even as gold has barely remained above a twenty year low. This chart clearly shows those funds which have recovered and those which seem to have only invested in stocks that don't easily go up.
The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of February 28) 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
25 Vanguard Gold/Pr Mtls. 304
5 Fidelity Select Gold . 217
1 ASA Ltd . 198
7 Franklin Gold A . 182
2 Amer Cent Global Gold. 139
24 Van Eck Intl Inv GoldA 93
18 Scudder Gold . 92
9 INVESCO Strat Gold . 66
22 USAA Gold . 64
13 Oppenheimer Gold A . 54
14 Permanent Portfolio . 53
15 Pilgrim Goldfund . 43
10 Midas Fund . 42
17 Rydex Prec Metals . 41
21 US Global World Gold . 39
3 AXP Precious Metals A. 30
23 Van Eck Gold / Res A . 24
20 US Global Gold Shrs . 21
16 Pilgrim Silver . 14
8 Gabelli Gold . 11
19 Tocqueville Gold . 11
6 First Eagle SGen Gold. 10
4 Evergreen Prec Mtls B. 7
11 Midas Investors . 5
12 Monterey OCM Gold . 1
As I mentioned during the last two months, if you totaled all of these funds, you would have just over 1.8 billion dollars. The total capitalization for gold equities, compared to many dotcom stocks, is still almost nothing. Some dotcom buyouts paid $2 billion to single investors. Any positive change in demand would drive these equities and funds into a strong bull trend. We may be seeing the beginning as the latest trend tries to change from down to up.
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
10 Midas Fund . 1.59
21 US Global World Gold . 1.57
12 Monterey OCM Gold . 1.25
20 US Global Gold Shrs . 1.22
24 Van Eck Intl Inv GoldA 1.15
11 Midas Investors . 1.13
32 Lexington Strat Invest 1.11
2 Amer Cent Global Gold. 1.10
28 Fidelity Sel Prec Mtls 1.07
17 Rydex Prec Metals . 1.06
5 Fidelity Sel Gold . 1.04
31 Pioneer Gold A . 1.04
6 First Eagle SGen Gold. 1.03
16 Pilgrim Lxtn Silver . 1.00
3 AXP Precious Metals A. 0.99
15 Pilgrim Goldfund . 0.97
13 Oppenheimer Gold A . 0.96
1 ASA Ltd . 0.95
22 USAA Gold . 0.84
23 Van Eck Gold / Res A . 0.84
8 Gabelli Gold . 0.81
29 PIMCO Adv Prc Mtls C . 0.81
9 INVESCO Strat Gold . 0.79
7 Franklin Gold A . 0.78
4 Evergreen Prec Mtls B. 0.78
30 Morgan St DW Prc Mtls. 0.73
25 Vanguard Gold/Pr Mtls. 0.69
19 Tocqueville Gold . 0.68
18 Scudder Gold . 0.63
33 United Gold / Govt . 0.46
14 Permanent Portfolio . 0.16
Since we haven't had any recent changes in 52 highs and lows, this number hasn't changed in two months. If you compare this list with the nav changes, you will find that volatility does not always match success. In fact, Vanguard, Tocqueville, and Scudder, all leaders on the latest monthly chart, are low in beta, while high beta funds are often losers.
*** 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. These numbers have remained stable, changing little within the past seven months. When the market turns, I would expect the funds at the top to make the biggest moves. For comparison only, some of the recently expired funds are left on this list.
INVESTING COMMENTS
Global Watch | Comparing Funds
The month ended with a nice rally, carrying gold up over $12 from its low at 255.1, and showing that the yellow metal still has some rally power. The gold leasing interest rate (charge) increased during this rally as if there were fewer metal owners willing to lease their gold to short sellers. This is a strong bullish sign and bears watching, no pun intended. The strength of ASA, representing South African stocks, is also a long term bullish indicator. While ASA does not always cycle closely with the other funds, it rarely runs off by itself. A continuing advance by ASA will be strongly bullish for the other funds.
In this regard, a recent study over the past ten years by EagleWing found that ASA and gold do not correlate as closely with the average gold fund or XAU index as might be expected. In other words, gold equities have a life of their own, not always matching highs and lows reached by ASA, gold, or silver. Cycles produced by equity investors and bullion investors are not always on the same frequency. Quite often most major rallies have seen equity investors much more optimistic before bullion gets on the same bandwagon. As a result, gold equities and funds often make false moves before running out of steam because gold does not follow. Successful investing in this field can be determined solely by knowing which rally by equities is the real thing.
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