EagleWing Research Newsletter on Gold Funds
June 1, 2002
GLOBAL WATCH
Comparing Funds | Comments
While the Israeli-Palestinian conflict endured for the entire month, the Pakistan-India confrontation added another variable for the last two weeks. War, especially the prospect of large scale devastation, has a way of influencing financial markets, so the upward bias in gold prices should come as no surprise. However, it must be remembered that at the beginning of the Gulf War military attack in January, 1991, the price of gold plunged from its value pushed up by the expectation of war.
The situation in Argentina has taken a back seat in the news but has created a depression in that country because the currency dropped over 70% in value due to government gross mismanagement. In Japan, some government debt was downgraded to lousy status due to the large amount of government debt. Japanese citizens continued a new cultural adjustment by buying gold for personal savings. According to the World Gold Council, Japanese purchases have doubled this year. The yen, which was advertised to drop in value to assist the new government policies, has been rising against the dollar.
The dollar continued its slow decline for the entire month of May and the price of gold benefited. Climbing from 308.9 to 326.6, a value not seen since 1997, the new price of gold gave new substance to the word 'profit' at many gold mines. The resulting increase in equity values pushed gold funds to new high net asset values. Questions being more openly discussed by financial advisors include 'when will it reverse, like it has for the past five years' and 'how high can it go', along with the occasional 'whats happening'.
Gold equities and funds took a minor hit last week when a Goldman, Sachs & Co analyst stated that gold would have a hard time going higher than 325 due to decreasing jewelry demand, which is the leading consumption of gold. The markets responded by taking profits. The few other analysts looking at gold are more bullish.
For the month, gold climbed from 308.90 to close at 326.80 and silver from 4.53 to 5.02, with the XAU index from 73.9 to 84.2. The long bond rate remained stable between 5.6% and 5.75%, closing at 5.61%. Low mortgage rates continued to benefit the housing industry as it maintained its boom.
The U.S. economy seems to be getting back on the right track as the consumers sentiment index, the purchasing officers index, and manufacturing new orders went up. The concept of 'Free Trade' was diminished as President Bush signed a farm subsidy law and a steel tariff. International confidence in U.S. economic policy showed signs of weakening, which has a direct effect on the dollar.
The yen gained from 128.6 to 124.2 yen per dollar and the euro from .900 to .934 as the dollar slipped. Oil closed at $25.30 and the Dow at 9925.
COMPARING FUNDS
Global Watch | Comments
Funds ranked by percentage change in net asset value for May.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
18 UNWPX US Global World PrecM. 40.8 80.8 138.5 101.7 61.0
17 USERX US Global Gold Shrs . 32.5 66.4 126.8 130.0 93.4
3 INPMX AXP Precious Metals A. 25.0 47.0 76.8 114.5 81.8
9 LEXMX ING Pilgrim Pr Mtls A. 23.3 44.8 92.5 119.4 97.2
20 INIVX Van Eck Intl Inv GoldA 22.8 47.8 122.9 116.9 75.2
6 SGGDX First Eagle SGen Gold. 22.7 47.6 126.3 150.4 138.4
2 BGEIX Amer Cent Global Gold. 21.8 43.3 106.0 129.7 97.6
4 EKWBX Evergreen Prec Mtls B. 21.2 42.2 85.7 128.6 109.8
11 MIDSX Midas Fund . 21.1 43.8 75.0 69.5 18.4
19 USAGX USAA Gold . 20.8 41.3 100.5 140.5 119.7
8 GOLDX Gabelli Gold . 19.3 44.1 101.6 149.7 131.3
10 FGLDX INVESCO Gold . 18.9 38.8 76.8 83.5 59.3
12 MNTGX Monterey OCM Gold . 18.7 40.2 96.2 112.4 98.9
16 TGLDX Tocqueville Gold . 18.6 37.0 102.0 135.6 134.3
15 SCGDX Scudder Gold & Pr Mt S 18.3 40.3 65.8 100.7 90.4
1 ASA ASA Ltd . 17.1 46.3 97.2 162.8 153.4
14 RYPMX Rydex Prec Metals . 16.6 29.8 61.3 78.2
5 FSAGX Fidelity Select Gold . 16.5 32.9 78.7 104.8 94.7
13 OPGSX Oppenheimer Gold A . 14.9 29.5 50.7 80.8 63.2
21 VGPMX Vanguard Prec Metals . 14.9 27.8 52.4 108.4 97.3
7 FKRCX Franklin Gold & PrM A. 11.5 27.1 38.7 75.5 77.5
I stated last month that we were due for a correction, which lasted about two days. Gold funds jumped back on the speedway as the dollar weakened and confidence in U.S. trade policy decreased. Eight funds are up over 100% for the last 12 months. Now, I think we are due for a correction.
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(5-31)
18 US Global World PrecM. 99.0 12.64
17 US Global Gold Shrs . 97.1 6.44
16 Tocqueville Gold . 96.4 25.23
6 First Eagle SGen Gold. 93.7 12.47
21 Vanguard Prec Metals . 93.5 12.79
19 USAA Gold . 92.6 11.71
3 AXP Precious Metals A. 90.5 9.76
5 Fidelity Select Gold . 90.2 24.25
20 Van Eck Intl Inv GoldA 88.8 10.30
9 ING Pilgrim Pr Mtls A. 88.7 5.66
12 Monterey OCM Gold . 88.5 8.75
8 Gabelli Gold . 87.7 12.26
2 Amer Cent Global Gold. 87.3 9.60
13 Oppenheimer Gold A . 87.1 15.24
10 INVESCO Gold . 86.7 2.90
4 Evergreen Prec Mtls B. 86.7 21.76
11 Midas Fund . 86.2 1.61
7 Franklin Gold & PrM A. 85.1 14.09
14 Rydex Prec Metals . 83.1 33.61
15 Scudder Gold & Pr Mt S 83.0 11.46
1 ASA Ltd . 80.7 37.50
Most of these funds made another series of 52-week highs last week and backed off with some profit taking. This number gives an indication of how far a fund pulled back from its recent high during profit taking.
The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of May 31) This is only an approximation as the size changes daily with new purchases, redemptions, and nav changes. Although Fidelity recently passed Vanguard as the largest gold fund, relative positions of the funds usually don't change much. The largest remain the largest.
fn fund assets
5 Fidelity Select Gold . 535
21 Vanguard Prec Metals . 506
1 ASA Ltd . 360
2 Amer Cent Global Gold. 327
7 Franklin Gold & PrM A. 234
20 Van Eck Intl Inv GoldA 183
15 Scudder Gold & Pr Mt S 126
10 INVESCO Gold . 116
19 USAA Gold . 116
13 Oppenheimer Gold A . 101
16 Tocqueville Gold . 88
9 ING Pilgrim Pr Mtls A. 83
8 Gabelli Gold . 58
18 US Global World PrecM. 50
3 AXP Precious Metals A. 44
11 Midas Fund . 41
14 Rydex Prec Metals . 38
6 First Eagle SGen Gold. 38
17 US Global Gold Shrs . 30
12 Monterey OCM Gold . 29
4 Evergreen Prec Mtls B. 18
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 probably want one at the top of this list. However, during a correction, the funds at the bottom would probably do better.
fn fund beta
6 First Eagle SGen Gold. 1.68
17 US Global Gold Shrs . 1.59
18 US Global World PrecM. 1.57
2 Amer Cent Global Gold. 1.52
8 Gabelli Gold . 1.50
20 Van Eck Intl Inv GoldA 1.46
12 Monterey OCM Gold . 1.44
19 USAA Gold . 1.39
16 Tocqueville Gold . 1.32
4 Evergreen Prec Mtls B. 1.27
9 ING Pilgrim Pr Mtls A. 1.22
1 ASA Ltd . 1.21
5 Fidelity Select Gold . 1.12
10 INVESCO Gold . 1.11
3 AXP Precious Metals A. 1.10
15 Scudder Gold & Pr Mt S 0.98
11 Midas Fund . 0.98
14 Rydex Prec Metals . 0.96
13 Oppenheimer Gold A . 0.82
7 Franklin Gold & PrM A. 0.74
21 Vanguard Prec Metals . 0.62
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. The nav price movement is a direct reflection of the types of equities selected by the fund manager.
*** 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
U.S. Global World Precious Minerals (UNWPX) surged over 40% for the month, unusual even when measured relative to other gold funds.
The following links can be made to internet pages with recent gold comments.
#1
#2
#3
While we're seeing economic and emotional reasons for buying gold, the usual dampening factors are having minimum effect. Central banks have reduced their selling programs, most gold mines have terminated their hedging operations, and the dollar has lost its sole position as the international safe haven. I don't expect any of these restrictions on gold advances to return anytime soon.
One factor always offered by the financial press is that the falling stock market creates a demand for alternate investments, such as precious metals, but historically this is a weak and unreliable factor, at best. The total capitalization of all gold mines is a mere pittance in the size of the massive stock market. If this new demand for alternative investments were real, gold stocks would double overnight. The number of new gold investors is only beginning.
For the price of gold to maintain a sustained increase above 325, there must be several valid economic reasons, not just emotion. Some of these reasons have become evident. The large trade deficits of the past and expectations of more stretching into the far future are a valid reason for losing some faith in the dollar. The terrorist attack on the U.S. and potential consequences to our economy have cast some doubts on the safe haven status of the dollar. The increase in credibility of the euro as a reserve currency for central banks has taken something away from the dollar. All of these point toward an investment environment which did not exist a year ago, and will probably remain for at least a few years. This is all bullish for gold and will not be overruled by minor technical factors. Long term is up.
On the other hand, in the short term, the Goldman Sachs analyst's comment was based on the last two months' substantial advance made by three gold equities, and had an immediate effect, creating profit-taking in the entire market. The current market could be classified as overbought and further correcting is not out of the picture.
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