EagleWing Research Newsletter on Gold Funds
July 1, 2001
GLOBAL WATCH
Comparing Funds | Comments
For June, the international scene wasn't much, including a visit by President Bush to Europe which had little apparent effect upon financial markets. Brazil and Argentina appeared to stabilize their currencies without creating a new crisis in South America. Oil remained in a narrow range around $26-28. The euro closed the month at .845, just above a seven year low, as both Europe and Japan continue to show advanced signs of approaching recessions. Most of the world economies are not in good shape, and many have a major dependence on a surplus trade with the U.S. Meanwhile, the latest U.S. trade deficit was still over $30 billion.
Even with the trade deficit, the dollar remained strong, pushing the dollar index up to the 120 level before closing the month at 119.4. It appears that the currencies of the rest of the world are depreciating more than the dollar, making the value of the dollar look relatively good. That is essential financial policy in most other countries for keeping a trade surplus with the U.S., and in their currencies, gold is rebounding.
An analyst can, by ignoring the increasing interest rates on all major debt the last three weeks, even with another Fed decrease in the short term rate, say we are in great shape because housing sales are still booming and consumers are still buying with credit cards. He must also overlook decreasing domestic manufacturing numbers and recession probabilities that won't go away. His main recovery engine is the U.S. consumer, now heavily in debt.
Revitalizing a U.S. economy which is supported by massive credit arrangements, seems to be based on the lowering of interest rates every time there is a near-serious financial situation. Signs of increasing unemployment, an approaching recession, or just a dip in sales somewhere brings out cries for lower rates to solve the problem. Eventually the economy will reach a point where the Fed cannot lower rates anymore because the real credit market contradicts it. In that same market, traded everyday worldwide, interest rates are now rising as bonds in abundance are sliding in price. The 30 year U.S. bond rate, closed this week at 5.74%, up noticeably from last month. One of the first signs of a precious metals resurgency will be higher debt interest rates as more investors look for another safe haven and turn their backs on financial debt instruments. The gold rally in May showed that there is a reservoir of demand for the yellow metal once the floodgates open.
On the other hand, over the past 30 days, the gold rally which peaked in May continued to slide, with only a few days of rallying to encourage the dedicated. The price of gold started June at 265.3, rallied to reach 276.2 during the last week of the month, and closed the month at 270.6, while the XAU index fell from 57.1 to 53.2. Gold Funds were about evenly split between gainers and losers. Silver dropped from 4.39 to 4.29, near a multiyear low.
Comparing Funds
Global Watch |
Comments
Funds ranked by percentage change in net asset value for June.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
23 INIVX Van Eck Intl Inv GoldA 6.9 18.8 -1.2 -18.1 -26.4
2 BGEIX Amer Cent Global Gold. 3.9 25.4 8.5 -4.3 -15.8
6 SGGDX First Eagle SGen Gold. 3.4 17.8 10.0 7.3 -9.2
5 FSAGX Fidelity Select Gold . 2.7 23.6 9.6 6.1 8.0
18 TGLDX Tocqueville Gold . 2.4 21.6 10.5 13.3 27.9
21 USAGX USAA Gold . 2.4 25.1 14.1 7.4 12.0
12 MNTGX Monterey OCM Gold . 1.3 20.2 5.9 -0.4 -8.9
3 INPMX AXP Precious Metals A. 1.3 21.8 16.0 1.3 -0.0
4 EKWBX Evergreen Prec Mtls B. 0.8 23.5 17.2 11.7 2.0
15 LEXMX Pilgrim Prec Metals A. 0.7 16.5 8.0 -1.3 -3.6
8 GOLDX Gabelli Gold . 0.7 25.4 16.1 13.3 7.7
19 USERX US Global Gold Shrs . -0.4 17.9 -3.1 -17.3 -25.5
20 UNWPX US Global World Gold . -0.4 13.3 -17.9 -32.2 -46.5
9 FGLDX INVESCO Strat Gold . -0.6 14.0 -2.4 -12.4 -17.3
13 OPGSX Oppenheimer Gold A . -2.0 18.1 12.6 0.6 12.6
24 VGPMX Vanguard Gold/Pr Mtls. -2.1 23.6 20.6 12.0 26.5
17 SCGDX Scudder Gold . -2.2 16.4 13.4 6.5 1.7
11 MIDIX Midas Investors . -2.4 14.9 -5.2 -29.7 -45.2
14 PRPFX Permanent Portfolio . -2.5 2.1 -1.5 -2.0 -3.3
16 RYPMX Rydex Prec Metals . -2.8 14.3 4.2
1 ASA ASA Ltd . -2.9 17.0 22.9 23.9 13.9
10 MIDSX Midas Fund . -4.3 10.0 -8.3 -34.8 -47.9
22 GRFRX Van Eck Gold / Res A . -4.6 7.3 6.4 -7.8 -22.7
7 FKRCX Franklin Gold A . -5.0 17.1 14.9 12.7 21.2
Examining the stocks which predominately occur in gold fund portfolios, most of the small, low priced stocks gained in June, some substantially on a percentage basis. However, the larger mines, which also turn up in the indexes, such as XAU, were not so lucky. Newmont Mining(NEM), Placer Dome(PDG), Barrick(ABX), and Freeport McMoran(FCX) all rolled over after the rally stalled. FCX, for instance, peaked in May at 17.15 and closed June at 11.05, down -36% in six weeks. This was partially due to an unfavorable analyst report because of lower copper prices, not gold. A fund with much FCX stock was probably negative this month due to the price of copper.
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(6-29)
5 Fidelity Select Gold . 49.5 13.93
6 First Eagle SGen Gold. 45.2 5.70
21 USAA Gold . 44.7 5.98
2 Amer Cent Global Gold. 41.5 4.84
23 Van Eck Intl Inv GoldA 39.1 4.94
4 Evergreen Prec Mtls B. 38.1 11.81
12 Monterey OCM Gold . 37.6 4.52
24 Vanguard Gold/Pr Mtls. 36.8 8.21
18 Tocqueville Gold . 35.2 12.79
8 Gabelli Gold . 34.2 6.12
15 Pilgrim Prec Metals A. 33.9 2.96
3 AXP Precious Metals A. 28.6 5.59
13 Oppenheimer Gold A . 28.3 9.91
9 INVESCO Strat Gold . 27.6 1.63
7 Franklin Gold A . 23.9 9.65
17 Scudder Gold . 23.3 6.76
22 Van Eck Gold / Res A . 15.0 2.49
1 ASA Ltd . 14.9 19.14
19 US Global Gold Shrs . 14.9 2.83
16 Rydex Prec Metals . 13.3 20.26
11 Midas Investors . 4.8 2.01
14 Permanent Portfolio . 4.1 17.99
10 Midas Fund . -3.7 0.88
20 US Global World Gold . -18.4 5.28
Several funds reached new highs in May but have given up much of their gains since then. As seen from these statistics, all but two funds are closer to their high than to their low.
The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of June 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. The largest remain the largest.
fn fund assets
24 Vanguard Gold/Pr Mtls. 319
5 Fidelity Select Gold . 213
1 ASA Ltd . 184
7 Franklin Gold A . 167
2 Amer Cent Global Gold. 166
23 Van Eck Intl Inv GoldA 99
17 Scudder Gold . 97
21 USAA Gold . 74
9 INVESCO Strat Gold . 61
13 Oppenheimer Gold A . 58
14 Permanent Portfolio . 52
15 Pilgrim Prec Metals A. 47
16 Rydex Prec Metals . 43
20 US Global World Gold . 42
3 AXP Precious Metals A. 32
10 Midas Fund . 32
22 Van Eck Gold / Res A . 25
19 US Global Gold Shrs . 23
8 Gabelli Gold . 12
18 Tocqueville Gold . 12
12 Monterey OCM Gold . 11
6 First Eagle SGen Gold. 9
4 Evergreen Prec Mtls B. 6
11 Midas Investors . 3
The total sum of these funds and other related gold funds is slightly over $2 billion, a paltry sum in world markets. Once demand for gold equity investments picks up, an increase of $2 billion more would cause these fund values to skyrocket. There are only so many valid gold equities.
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
16 Rydex Prec Metals . 1.44
12 Monterey OCM Gold . 1.43
1 ASA Ltd . 1.40
2 Amer Cent Global Gold. 1.34
21 USAA Gold . 1.30
4 Evergreen Prec Mtls B. 1.28
6 First Eagle SGen Gold. 1.27
13 Oppenheimer Gold A . 1.21
8 Gabelli Gold . 1.20
3 AXP Precious Metals A. 1.20
5 Fidelity Select Gold . 1.17
17 Scudder Gold . 1.15
7 Franklin Gold A . 1.13
15 Pilgrim Prec Metals A. 1.13
24 Vanguard Gold/Pr Mtls. 1.03
9 INVESCO Strat Gold . 1.02
18 Tocqueville Gold . 0.94
23 Van Eck Intl Inv GoldA 0.94
19 US Global Gold Shrs . 0.91
22 Van Eck Gold / Res A . 0.88
20 US Global World Gold . 0.85
11 Midas Investors . 0.83
10 Midas Fund . 0.80
14 Permanent Portfolio . 0.26
The fund highs reached by many of these funds in May have caused these numbers to change dramatically over the past two months. Again, this number is only an indication of net asset value (nav) volatility, meaning price changes compared to other funds. As you can see, there is a big difference between management policies 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 eight months.
INVESTING COMMENTS
Global Watch | Comparing Funds
The Van Eck Gold and Resources Fund (GRFRX) hasn't posted a daily net asset value for a week, an indication that they're about to quit the game. Interestingly, their sister fund, Van Eck International Investor (INIVX), was the top fund for June.
The economic comments presented each month and weekly in the updates on the EagleWing Research Page on Gold Funds, www.eaglewing.com, are an attempt to clarify the forces in the gold market which are often overlooked by the mainstream press and many economists because they doesn't fit their agendas. The main premise is that gold will eventually rally in dollars because the dollar will get weaker. Of course that hasn't happened yet, so the premise appears to be incorrect. However, history has shown that a nation which debases its currency cannot escape the consequences, and that always means higher precious metals prices.
An interesting editorial article written by 1996 Republican Vice Presidential nominee Jack Kemp suggests that it is time to re-attach the U.S. dollar to gold as it was before 1971, and bases his argument on the idea that the pushing down of the price of gold during the past five years has been deflationary in the U.S., producing an unnecessarily strong dollar. Kemp says that an effective price of gold for a stable dollar would be between 325 and 350. You can catch the rest in the Thursday, June 28 edition of the Wall Street Journal, editorial pages.
Another article was written about the very experienced portfolio manager of the First Eagle SoGen Gold Fund (SGGDX), Jean-Marie Eveillard, and his view of the gold market. Look in the same June 28 edition of the WSJ in the back of the mutual funds section called 'Fund Track'.
I have added another column on the gold stocks page at www.eaglewing.com/stocks.htm, which links to detailed stock information from Forbes.com for those not afraid of serious equity research.
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