EagleWing Research Newsletter on Gold Funds
March 1, 2003
GLOBAL WATCH
Comparing Funds | Comments
The main news story for the month affecting gold prices is still the potential war with Iraq, which has been put on a temporary hold. The prospect for war has not diminished although President Bush has been trying to get a significant resolution out of the U.N., essentially approval for removing Hussein by force. Both Germany and France are resisting. Large peace demonstrations give the impression that the war could be cancelled, but that's unlikely unless Hussein steps down, again unlikely. Chief weapons inspector Blix could not see any sign of Iraq willing to disarm other than destruction of one missile. Estimates for recovery and stability costs after the war are increasing with each guess.
North Korea tested a defensive missile and created another alarm, which temporarily boosted gold, particularly in the Far East.
A new governor for the Bank of Japan was appointed and temporarily supported the yen, which closed at 118.17 yen /dollar. As a conservative banker, he is not expected to make many new changes, and therefore maintain the same existng policies.
In South America, both Brazil and Argentina seem to have their debts, currencies, and economies back under reasonable control. Brazil's President Lula da Silva continues to gather support for his centrist policies, and therefore has little effect on gold for now. Venezuela remains under threat of strike so oil exports remain low.
The price of oil reached over $38, not seen for over ten years, but closed the month at $36.60. Most other commodities were also experiencing rising prices, but official inflation is still low, for now.
Although the euro has been strong against the dollar in the past few months, European economies are not even keeping up with a weak U.S. While Europe has managed to have a current account surplus, the U.S has once again produced a monthly record trade deficit in December of over $44 billion and another annual record for 2002. The euro closed at 1.0806.
In the U.S. existing home sales continued at a brisk pace. Personal credit continued to expand, mostly through mortgage financing. 2003 was expected to produce another record number of personal bankruptcies, as the University of Michigan survey of consumer confidence in the economy fell to a low not seen since 1993. GDP increased over the last quarter of 2002 at 1.4%, but the Dow Industrials fell below 8000 to 7891. The yield on the U.S. long bond fell to a new low, closing at 4.67%.
For the month, gold rallied above 390 intraday in the Far East, but fell back to close at 350.2. XAU closed at 71.9 after reaching as high as 80. Silver reached 4.91 before closing at 4.58. The dollar slipped slightly to 99.71.
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
18 UNWPX US Global World PrecM. -3.7 28.6 38.8 94.4 31.8
16 TGLDX Tocqueville Gold . -4.2 19.9 32.8 105.0 106.0
12 MNTGX Monterey OCM Gold . -4.9 21.0 46.0 129.5 109.9
9 LEXMX ING Pilgrim Pr Mtls A. -4.9 13.3 28.4 85.9 71.9
15 SCGDX Scudder Gold & Pr Mt S -4.9 19.3 36.8 73.3 87.3
5 FSAGX Fidelity Select Gold . -5.1 18.6 24.5 83.6 70.0
21 VGPMX Vanguard Prec Metals . -5.2 5.5 6.5 36.3 54.5
10 FGLDX INVESCO Gold & Pr Mtl. -5.8 15.0 24.4 74.5 57.6
8 GOLDX Gabelli Gold . -5.9 21.0 38.5 114.4 115.5
13 OPGSX Oppenheimer Gold A . -6.0 10.3 10.6 42.0 39.0
6 SGGDX First Eagle SGen Gold. -6.1 19.7 48.2 148.4 124.8
20 INIVX Van Eck Intl Inv GoldA -6.3 22.5 37.7 107.7 89.7
17 USERX US Global Gold Shrs . -6.3 25.0 30.5 91.3 53.5
3 INPMX AXP Precious Metals A. -6.6 12.7 19.3 54.1 50.3
14 RYPMX Rydex Prec Metals . -6.6 11.8 11.5 47.7
4 EKWBX Evergreen Prec Mtls B. -7.0 17.6 29.5 87.7 87.7
7 FKRCX Franklin Gold & PrM A. -7.1 9.1 8.7 28.5 40.3
2 BGEIX Amer Cent Global Gold. -7.6 17.1 26.7 101.7 80.1
19 USAGX USAA Gold . -7.8 10.2 21.4 93.1 85.6
11 MIDSX Midas Fund . -7.9 9.4 25.0 59.1 29.6
1 ASA ASA Ltd . -9.4 20.5 43.6 101.8 117.0
Gold peaked at a six year high during the first week of February, but fell back to a range between 344-356. Funds are down due to equities prices sliding, and some of that is due to someone big, probably hedge funds, shorting stocks instead of bullion. Short positions in many gold stocks and silver stocks have really increased since early December. As a result of the last two months, no gold fund is up for 2003. With or without a war, we are due for a move up which will cause some of the shorts to cover.
ASA Ltd (NYSE-ASA), in particular, is giving the impression that it doesn't think much of gold's advance although it set a new recent high on January 3.
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(02-28-03)
16 TGLDX Tocqueville Gold . 84.7 23.44
15 SCGDX Scudder Gold & Pr Mt S 70.5 11.18
6 SGGDX First Eagle SGen Gold. 68.0 12.52
12 MNTGX Monterey OCM Gold . 67.6 9.11
20 INIVX Van Eck Intl Inv GoldA 67.2 7.80
8 GOLDX Gabelli Gold . 65.4 11.79
5 FSAGX Fidelity Select Gold . 61.5 22.73
1 ASA ASA Ltd . 57.9 36.21
4 EKWBX Evergreen Prec Mtls B. 49.3 19.82
9 LEXMX ING Pilgrim Pr Mtls A. 43.9 5.02
10 FGLDX INVESCO Gold & Pr Mtl. 42.3 2.60
2 BGEIX Amer Cent Global Gold. 41.4 8.49
19 USAGX USAA Gold . 36.4 10.06
11 MIDSX Midas Fund . 34.9 1.40
17 USERX US Global Gold Shrs . 24.2 5.05
14 RYPMX Rydex Prec Metals . 20.9 28.87
18 UNWPX US Global World PrecM. 20.4 9.70
3 INPMX AXP Precious Metals A. 18.8 7.92
13 OPGSX Oppenheimer Gold A . 14.8 13.02
7 FKRCX Franklin Gold & PrM A. 12.0 12.05
21 VGPMX Vanguard Prec Metals . 10.5 10.66
As mentioned last month, seven funds exceeded or were very close in January to their highs set last May: First Eagle SoGen Gold (SGGDX), ASA Limited (ASA-NYSE), Monterey OCM Gold (MNTGX), Gabelli Gold (GOLDX), Scudder Gold (SCGDX), Fidelity (FSAGX), and Tocqueville(TGLDX). They will bear watching once the rally starts.
These numbers demonstrate a fund's ability to retain previous advances without falling out of bed when gold has a bad month or two. It's obvious which funds couldn't hold onto their gains and which have.
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 usually don't change much. The largest remain the largest.
fn fund assets
21 VGPMX Vanguard Prec Metals . 639
5 FSAGX Fidelity Select Gold . 583
2 BGEIX Amer Cent Global Gold. 379
1 ASA ASA Ltd . 347
7 FKRCX Franklin Gold & PrM A. 245
20 INIVX Van Eck Intl Inv GoldA 161
18 UNWPX US Global World PrecM. 142
15 SCGDX Scudder Gold & Pr Mt S 132
19 USAGX USAA Gold . 128
13 OPGSX Oppenheimer Gold A . 122
8 GOLDX Gabelli Gold . 115
10 FGLDX INVESCO Gold & Pr Mtl. 115
9 LEXMX ING Pilgrim Pr Mtls A. 107
16 TGLDX Tocqueville Gold . 93
6 SGGDX First Eagle SGen Gold. 88
17 USERX US Global Gold Shrs . 84
14 RYPMX Rydex Prec Metals . 70
3 INPMX AXP Precious Metals A. 48
11 MIDSX Midas Fund . 43
12 MNTGX Monterey OCM Gold . 41
4 EKWBX Evergreen Prec Mtls B. 26
The total amount of assets under management by these funds has doubled over the past year, mostly due to net asset value increases, but also due to new investment capital directed toward gold funds. The mutual fund boom of 1998-2000 was fueled by cash being thrown at the stock market by giving it to mutual funds and forcing them to find stocks to invest in. Gold funds are not there yet, but the potential exists for that to happen soon. There are only so many valid gold equities worldwide and until recently the total was exceeded by the capitalization of individual corporations, such as Coca-Cola alone.
The beta indicator measures the relative volatility of a fund's net asset value (nav) movement over the last 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. Naturally, if the market is going up, you would want one at the top of this list. However, during a correction, the funds at the bottom would probably do better.
fn fund beta
18 UNWPX US Global World PrecM. 1.55
17 USERX US Global Gold Shrs . 1.51
6 SGGDX First Eagle SGen Gold. 1.38
1 ASA ASA Ltd . 1.37
20 INIVX Van Eck Intl Inv GoldA 1.21
8 GOLDX Gabelli Gold . 1.21
12 MNTGX Monterey OCM Gold . 1.20
16 TGLDX Tocqueville Gold . 1.07
3 INPMX AXP Precious Metals A. 1.07
2 BGEIX Amer Cent Global Gold. 1.06
9 LEXMX ING Pilgrim Pr Mtls A. 1.02
19 USAGX USAA Gold . 1.02
11 MIDSX Midas Fund . 0.99
4 EKWBX Evergreen Prec Mtls B. 0.97
10 FGLDX INVESCO Gold & Pr Mtl. 0.89
15 SCGDX Scudder Gold & Pr Mt S 0.85
5 FSAGX Fidelity Select Gold . 0.85
14 RYPMX Rydex Prec Metals . 0.82
13 OPGSX Oppenheimer Gold A . 0.68
21 VGPMX Vanguard Prec Metals . 0.66
7 FKRCX Franklin Gold & PrM A. 0.65
The beta for each fund may change as the fund advances and declines, but the general 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 nav movement is a direct reflection of the types of equities selected by the fund manager.
INVESTING COMMENTS
Global Watch | Comparing Funds
US Global World Precious Minerals(UNWPX) held down the top spot again, also leading for the last three months period. While the last two months have seen gold giving up most, if not all, of its supposedly 'war premium', and all gold funds down, the longer periods still show excellent returns.
As gold moved over $300, most gold mines terminated hedging and forward sales. This month, Barrick Gold officially reversed its policy, stating that they were working to eliminate their hedge books on gold and silver. This decision brought about the firing of their CEO, responsible for promoting the hedging policy, and confirming that they are serious.
A weaker yen has encouraged Japanese citizens to buy gold, and the price spike above $370 caused many of them to sell. The next surge to that price level won't have as many selling, producing a higher high, say $400-410. A Japanese government policy of a weaker yen will be positive for gold.
The driving force in the news affecting gold has been the weakening U.S. dollar. Even the war fears affecting gold are due to a projected lower dollar caused by a prolonged conflict and heavy cost to the U.S. taxpayer and economy. While the economy struggles to stay above water with a 1.4% growth rate, other factors act to draw down the dollar. Peaceful conclusions are thought to bring gold back down.
Another record trade deficit for December, 10% over estimate, indicates that this problem will be here for some time, until the dollar goes down 10%, maybe 20%.
Another unusual factor: during the month the COMEX increased the margin requirement for gold futures, which undoubtedly pushed some small traders out or limited the size of holdings for bigger traders. Decreased demand or volume would tend to let the air out of any premium. Once the price stabilizes, like it appears to be doing, this gimmick won't work again.
Another factor to be aware of is the heavy shorting on silver worldwide, which has been restrained from rallying like gold. In fact, its six year low at 4.02 was set just 15 months ago. It now rests at 4.58, just 12% up from its low. Since supply is running low, silver's potential breakout could dwarf gold's move. That would make silver related stocks something to look at. Two are Hecla(HL) and Silver Standard (SSRI).
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