EagleWing Research Newsletter on Gold Funds
May 1, 2001
GLOBAL WATCH
Comparing Funds | Comments
Just when it looked like the stock market was going to fall completely out of bed, it jumped up with the help of the Federal Reserve and lower short term interest rates. The investing public took this to mean that any fear of a recession was over and it was time to get back into the game. The Dow rallied almost 10%, back over 10,700 with the NASDAQ back over 2000.
Several worldwide financial problems remained as Argentina's fiscal deficit threatened to cause a debt default. To do so would be financially destructive, so I think they will somehow avoid it. Its neighbor Brazil had its currency, the real, hit all-time lows against the dollar, along with the Chilean Peso. That indicates something is wrong in the southern hemisphere. The European euro dipped back under .90 against the dollar, and the yen weakened even with a new government. The consistent retreat to a safe haven brought about a rally in U.S. bonds, which pushed interest rates to recent lows. However, by the end of the month, bonds rates were edging back up. If bonds no longer appear to be a safe haven, interest rates will increase substantially as bonds fall in value.
The U.S.experienced the highest new jobless claims in March for the past decade, while total national income increased 2% in the first quarter. Car sales continued to boom, but mortgage rates bottomed at 6.9% and started up. The fact that market interest rates are moving slowly upward does not go along with the Fed'd lower rate decision. While the price of oil remained around $28, the price of gasoline reached alltime highs, and the Conference Board's consumer confidence index fell to a four year low. There are too many inconsistencies in this economy to say what is happening is normal.
Gold equities and funds rallied at the same time as the market with XAU steadily gaining from 47.5 to 55.1 (+16%). Because the price of gold barely moved at all from 257.9 to 264.0 (+2.4%), we can say that either (1) gold equities are following the general upward buying trend in the total market due to euphoria brought about by lower rates, and will soon come back down to reality, or (2) the price of gold will get in gear and join the inevitable advance. #1 has happened many times in the past six years, and #2 only a few times, so it's difficult to predict with probability alone. For the month, silver showed no sign whatsoever of any tendency to rally, closing a 4.32.
Meanwhile, a new free trade agreement was reached in Canada by just about everyone in the Americas except for a few thousand demonstrators. That means that the imbalances brought about in that past few years including the massive U.S. trade deficit, will continue as national policies until something bends or breaks. I think that will mean a few more currencies being put to the test, and eventually the dollar. When the dollar becomes the only one left not devalued, which is where we are headed, watch out.
COMPARING FUNDS
Global Watch | Comments
Funds ranked by percentage change in net asset value for April.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
25 VGPMX Vanguard Gold/Pr Mtls. 18.1 4.4 18.5 -4.2 -11.4
3 INPMX AXP Precious Metals A. 17.9 5.9 14.2 -13.8 -28.0
8 GOLDX Gabelli Gold . 17.8 9.3 22.1 -7.7 -22.1
1 ASA ASA Ltd . 16.5 17.1 14.6 -3.1 -24.9
22 USAGX USAA Gold . 16.3 11.4 15.3 -9.8 -18.3
4 EKWBX Evergreen Prec Mtls B. 15.8 12.3 12.4 -12.6 -32.4
2 BGEIX Amer Cent Global Gold. 15.3 12.4 0.5 -29.9 -44.7
10 MIDSX Midas Fund . 15.0 9.5 -8.7 -45.9 -63.9
5 FSAGX Fidelity Select Gold . 14.8 8.5 9.3 -14.3 -25.7
7 FKRCX Franklin Gold A . 14.4 5.0 5.0 -10.5 -19.0
12 MNTGX Monterey OCM Gold . 14.4 15.0 5.4 -17.5 -30.2
19 TGLDX Tocqueville Gold . 14.4 4.6 14.5 -3.4 20.3
13 OPGSX Oppenheimer Gold A . 14.3 10.2 13.6 -11.6 -15.1
17 RYPMX Rydex Prec Metals . 14.2 12.6 8.6
11 MIDIX Midas Investors . 13.7 0.0 -34.9 -56.5 -71.0
18 SCGDX Scudder Gold . 13.6 8.4 -20.1 -36.9 -47.6
20 USERX US Global Gold Shrs . 13.3 5.4 -10.9 -36.8 -55.4
24 INIVX Van Eck Intl Inv GoldA 13.2 5.6 -8.3 -37.5 -51.2
9 FGLDX INVESCO Strat Gold . 11.9 10.3 -27.0 -44.3 -56.6
23 GRFRX Van Eck Gold / Res A . 11.6 9.3 13.6 -16.5 -35.9
15 LEXMX Pilgrim Prec Metals . 11.0 9.3 -0.5 -23.8 -35.3
6 SGGDX First Eagle SGen Gold. 9.9 12.7 6.0 -12.9 -31.8
21 UNWPX US Global World Gold . 9.4 2.0 -25.9 -50.1 -62.3
14 PRPFX Permanent Portfolio . 3.5 -0.4 -4.4 -9.8 -9.0
The rally in funds looks great until you notice that the XAU had a 16% advance without any need for a portfolio manager and most of these funds couldn't match that. That also tells me that primary action was in the large capitalization equities as held in the XAU index, indicating that big money was involved. This quite often is not a good sign because the rally will usually come to a quick end when the big guns realize that their attempt to goose the gold equities isn't enough. The price of gold must eventually join in the advance or it's unsustainable.
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(4-30)
3 AXP Precious Metals A. 100.0 5.41
4 Evergreen Prec Mtls B. 100.0 11.07
8 Gabelli Gold . 100.0 5.75
15 Pilgrim Prec Metals . 100.0 2.82
13 Oppenheimer Gold A . 100.0 9.59
22 USAA Gold . 100.0 5.56
23 Van Eck Gold / Res A . 100.0 2.59
25 Vanguard Gold/Pr Mtls. 100.0 7.84
5 Fidelity Select Gold . 99.3 12.94
7 Franklin Gold A . 99.0 9.43
18 Scudder Gold . 96.0 6.60
17 Rydex Prec Metals . 82.2 20.25
6 First Eagle SGen Gold. 80.3 5.32
2 Amer Cent Global Gold. 73.8 4.45
19 Tocqueville Gold . 71.0 12.03
12 Monterey OCM Gold . 64.8 4.30
1 ASA Ltd . 59.9 19.21
9 INVESCO Strat Gold . 40.9 1.60
24 Van Eck Intl Inv GoldA 33.3 4.71
14 Permanent Portfolio . 21.0 18.23
11 Midas Investors . 12.7 1.99
20 US Global Gold Shrs . 0.0 2.72
10 Midas Fund . -44.3 0.92
21 US Global World Gold . -56.2 5.10
Just after it looked like some funds would set new yearly lows in March, several others surged to new yearly highs on the last two days of April. Following this short term trend, it appears that a long term trend is being established.
The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of April 30) 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. 305
5 Fidelity Select Gold . 227
1 ASA Ltd . 200
7 Franklin Gold A . 183
2 Amer Cent Global Gold. 147
24 Van Eck Intl Inv GoldA 95
18 Scudder Gold . 94
9 INVESCO Strat Gold . 71
22 USAA Gold . 69
13 Oppenheimer Gold A . 56
14 Permanent Portfolio . 53
15 Pilgrim Prec Metals . 45
10 Midas Fund . 44
17 Rydex Prec Metals . 43
21 US Global World Gold . 40
3 AXP Precious Metals A. 31
23 Van Eck Gold / Res A . 26
20 US Global Gold Shrs . 22
16 Pilgrim Silver . 13
8 Gabelli Gold . 12
12 Monterey OCM Gold . 11
6 First Eagle SGen Gold. 11
19 Tocqueville Gold . 11
4 Evergreen Prec Mtls B. 8
11 Midas Investors . 4
Vanguard Gold (VGPMX) once again punched back up into the $300 million asset area. The total here for all of these stocks is less than 1.8 billion.
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 . 2.09
21 US Global World Gold . 1.36
1 ASA Ltd . 1.17
12 Monterey OCM Gold . 1.16
17 Rydex Prec Metals . 1.03
2 Amer Cent Global Gold. 0.92
20 US Global Gold Shrs . 0.91
24 Van Eck Intl Inv GoldA 0.88
9 INVESCO Strat Gold . 0.87
11 Midas Investors . 0.84
22 USAA Gold . 0.81
4 Evergreen Prec Mtls B. 0.79
3 AXP Precious Metals A. 0.78
18 Scudder Gold . 0.74
6 First Eagle SGen Gold. 0.74
5 Fidelity Select Gold . 0.73
8 Gabelli Gold . 0.72
23 Van Eck Gold / Res A . 0.71
15 Pilgrim Prec Metals . 0.69
7 Franklin Gold A . 0.69
13 Oppenheimer Gold A . 0.69
25 Vanguard Gold/Pr Mtls. 0.67
19 Tocqueville Gold . 0.62
14 Permanent Portfolio . 0.17
Since we recently experienced several new fund highs, these numbers have changed significantly since March. Again, this number is only an indication of activity, meaning price changes compared to other funds. There is a big difference between some of these 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. These numbers have remained stable, changing little within the past seven months.
INVESTING COMMENTS
Global Watch | Comparing Funds
After February's short rally got gold traders excited, it ran out of steam and brought about March's slide. After testing the 22 year low for the price of gold on April 2nd at 255.6, the rest of the month showed a consistent advance, enough to get equity buyers back up off the couch. Traders like to see three bounces off of an established low, indicating that the low is not going to be broken this time around. This sometimes creates a technical rally even if not deserved by fundamentals. In this case, equities are leading the way, which is bullish if they can maintain the push.
Vanguard (VGPMX), American Express Precious Metals(INPMX), and Gabelli Gold (GOLDX) were not evident leaders during the month, but ended the month leading the pack. The best investments are those with a consistent advance without the volatile swings which bring about quick short term losses before you can do anything.
We have removed Pilgrim Silver (STSLX) from our list since they are no longer with us.
The recent decline in gold funds coincided with a rise in the dollar index to the 117 area, and the latest rally with a slip in the dollar index to the 114-115 area, but the dollar is still relatively strong against other world currencies so gold is not producing much of an advance. The U.S. dollar and U.S debt still remain major refuges for financial assets instead of precious metals. It appears that gold will still be relatively undervalued until the dollar weakens. Advances in gold funds may be premature until then.
|