EagleWing Research Newsletter on Gold Funds
August 1, 2001
GLOBAL WATCH
Comparing Funds | Comments
The month of July acted rather tame as gold, silver, and the XAU index all maintained narrow trading ranges. On the other hand, gold equities and gold funds continued to slide toward the low end of their trading ranges.
The situation in Argentina was not improving as the value of Argentina debt fell to lows and interest rates jumped to over 36%, indicating a lack of confidence in the current process, and a direct reflection on the international market's ability to remain calm. While some of their problem can be assigned to hanging onto a one-to-one currency relationship with the U.S. dollar, they have been operating on a budget deficit for years. The U.S. refusal to weaken the dollar to help nations like Argentina may be a sign of things to come.
Following the G8 meeting in Italy, the main news concern was over the idea of a U.S. missile shield and the possibility of our breaking the 1972 ABM treaty. Economic news was well hidden other than the general idea of globalization. OPEC stated that they would cut back production in September, more of a way to make sure the big nations don't forget about the source of most of that oil being consumed every day. Oil closed the month at $26.73, about where it's been for a few months.
The dollar index made a temporary move above 120 but has fallen back, closing the month at 117.2. The euro advanced slightly to close at .876. The Federal Reserve kept giving a hint that it was ready to drop the short term interest rate another quarter point and the stock market ignored the negative economic news. Layoffs, bankruptcies, trade deficits, a lack of national savings, and growing unemployment appear to be unimportant. The trade deficit, while better than the last few months, was still over $28 billion.
The Bank of England conducted a gold bullion auction, oversubscribed by four times, normally a bullish indication. However, the gold market had a short rally and resumed its downward drift. The XAU index closed at 53.0, down slightly from 53.2. Gold closed at 266.2, down from 270.6, and silver ended the month at 4.20, barely above a multiyear low (4.15).
Japanese voters elected a new prime minister and government as the yen hit a two year low. The new administration promised to make reforms, so we may see something different in the Far East, soon. Since their interest rate is already zero, it can't go much lower.
The Van Eck Gold and Resources Fund (GRFRX) merged its assets into another of Van Eck's hard asset funds and left our playing field. We are now down to 23 funds for our comparisons. As a result, the fund number (fn) for several funds changed.
COMPARING FUNDS
Global Watch | Comments
Funds ranked by percentage change in net asset value for July.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
14 PRPFX Permanent Portfolio . 1.7 0.3 0.6 -0.2 0.9
10 MIDSX Midas Fund . -1.1 -5.4 -1.1 -30.4 -44.6
12 MNTGX Monterey OCM Gold . -1.3 3.7 17.1 6.4 -2.0
11 MIDIX Midas Investors . -2.0 -1.0 2.6 -27.3 -42.1
6 SGGDX First Eagle SGen Gold. -2.6 4.3 18.6 5.7 -11.1
16 RYPMX Rydex Prec Metals . -3.5 -3.5 12.1
9 FGLDX INVESCO Strat Gold . -3.7 -1.9 1.3 -7.1 -14.2
2 BGEIX Amer Cent Global Gold. -3.7 4.7 13.9 -2.1 -11.1
22 INIVX Van Eck Intl Inv GoldA -3.8 0.8 4.2 -17.4 -25.7
21 USAGX USAA Gold . -4.7 2.5 17.3 10.3 15.6
17 SCGDX Scudder Gold . -4.7 -2.4 16.7 7.5 2.9
15 LEXMX Pilgrim Prec Metals A. -5.7 -0.4 12.0 -1.1 -4.1
13 OPGSX Oppenheimer Gold A . -5.7 -2.5 13.3 0.1 13.6
5 FSAGX Fidelity Select Gold . -5.7 1.5 10.2 6.4 10.0
20 UNWPX US Global World Gold . -5.7 -2.4 -13.4 -32.2 -45.7
4 EKWBX Evergreen Prec Mtls B. -5.8 0.5 19.8 11.6 2.2
18 TGLDX Tocqueville Gold . -6.3 -0.3 11.2 11.8 25.9
23 VGPMX Vanguard Gold/Pr Mtls. -6.7 -2.3 14.3 5.4 23.8
3 INPMX AXP Precious Metals A. -7.3 -4.3 16.4 2.8 -3.4
19 USERX US Global Gold Shrs . -7.4 -3.7 -0.8 -18.1 -31.4
8 GOLDX Gabelli Gold . -7.5 -1.6 16.5 12.7 4.2
7 FKRCX Franklin Gold A . -8.0 -5.8 12.4 7.0 18.7
1 ASA ASA Ltd . -10.2 -9.9 16.2 15.9 5.8
Any time the best fund of the month is Permanent Portfolio (PRPFX), it indicates that it was a down month, and the large amounts of hard commodities held by PRPFX held up better than gold equities held by the other funds. In addition, the fact that ASA is at the bottom is an indication that the international view of gold is dim for the moment.
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(7-31)
14 Permanent Portfolio . 34.7 18.29
6 First Eagle SGen Gold. 32.2 5.55
12 Monterey OCM Gold . 31.7 4.46
2 Amer Cent Global Gold. 23.9 4.66
21 USAA Gold . 22.0 5.70
5 Fidelity Select Gold . 19.5 13.14
22 Van Eck Intl Inv GoldA 15.5 4.75
4 Evergreen Prec Mtls B. 9.8 11.12
15 Pilgrim Prec Metals A. 7.1 2.81
9 INVESCO Strat Gold . 6.9 1.57
13 Oppenheimer Gold A . 0.3 9.35
17 Scudder Gold . -0.8 6.44
23 Vanguard Gold/Pr Mtls. -1.4 7.66
16 Rydex Prec Metals . -1.5 19.55
18 Tocqueville Gold . -2.9 11.99
8 Gabelli Gold . -3.7 5.66
11 Midas Investors . -7.9 1.97
3 AXP Precious Metals A. -8.0 5.18
10 Midas Fund . -11.1 0.87
7 Franklin Gold A . -17.4 8.88
1 ASA Ltd . -29.4 17.18
19 US Global Gold Shrs . -29.8 2.62
20 US Global World Gold . -52.9 4.98
Even after two months of sliding gold bullion and equity prices, the valuation range of these funds is about midrange over their 52 week highs and low point. In other words, they have been sliding but not falling to new lows.
The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of July 31) 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
23 Vanguard Gold/Pr Mtls. 298
5 Fidelity Select Gold . 201
1 ASA Ltd . 165
2 Amer Cent Global Gold. 160
7 Franklin Gold A . 153
22 Van Eck Intl Inv GoldA 96
17 Scudder Gold . 92
21 USAA Gold . 70
9 INVESCO Strat Gold . 59
13 Oppenheimer Gold A . 55
14 Permanent Portfolio . 53
15 Pilgrim Prec Metals A. 45
16 Rydex Prec Metals . 41
20 US Global World Gold . 39
10 Midas Fund . 32
3 AXP Precious Metals A. 29
19 US Global Gold Shrs . 21
8 Gabelli Gold . 11
12 Monterey OCM Gold . 11
18 Tocqueville Gold . 11
6 First Eagle SGen Gold. 9
4 Evergreen Prec Mtls B. 6
11 Midas Investors . 3
This statement deserves repeating: 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 and a pickup in gold demand would result in major advances.
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 . 1.30
12 Monterey OCM Gold . 1.29
1 ASA Ltd . 1.26
2 Amer Cent Global Gold. 1.21
21 USAA Gold . 1.17
4 Evergreen Prec Mtls B. 1.16
6 First Eagle SGen Gold. 1.14
13 Oppenheimer Gold A . 1.09
8 Gabelli Gold . 1.08
3 AXP Precious Metals A. 1.08
5 Fidelity Select Gold . 1.06
17 Scudder Gold . 1.04
7 Franklin Gold A . 1.02
15 Pilgrim Prec Metals A. 1.01
23 Vanguard Gold/Pr Mtls. 0.92
9 INVESCO Strat Gold . 0.92
18 Tocqueville Gold . 0.84
22 Van Eck Intl Inv GoldA 0.84
19 US Global Gold Shrs . 0.82
20 US Global World Gold . 0.76
11 Midas Investors . 0.75
10 Midas Fund . 0.72
14 Permanent Portfolio . 0.23
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. The fund highs reached by many of these funds in May caused these numbers to change. 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 big picture of the international situation was still a decreasing-growth, faltering trade mode as the U.S. consumer started to slow down from a spending, trade-deficit-producing binge. Since many of our trading partners depend significantly upon our ability or desire to buy overseas products due to a strong dollar, any slowdown in the U.S. has an immediate effect upon them.
As a nation's economy slows on the international marketplace, it has a direct effect upon its currency valuation relative to other currencies, specifically the U.S. dollar. Because the dollar has been the only currency maintaining a strong international economic position over the last few years, it has become the defacto reserve currency of choice by central bankers. This goes back to the early 90's after the fall of the Soviet Union. After that point in history, international crisis after crisis has resulted in scared money fleeing to the dollar as the safe haven, not precious metals.
Therefore, assuming the U.S. doesn't come under any attack which might diminish the faith in the U.S. government's ability to make its debt payments, the dollar will go up in a crisis, not gold.
However, today's situation for gold has come to depend more on economic valuations of paper currencies and a nation's ability to maintain the value of its currency. The U.S. policy for several years has been to support a strong dollar, resulting in a politically beneficial low inflation economy due to the billions of imported cheaper products each month. The Bush administration is not going to change a good thing.
The U.S. domestic market is now represented by a booming new homes market, supported by available mortgage credit. Higher home valuations mean more available home equity loans to invest elsewhere. What will happen when homeowners are fully committed?
Overseas dollars as a result of the trade deficit are still coming back to us as investment capital, supporting the current marketplaces and holding inflation down. By lowering the interest rate every time the stock market stalls or unemployment rises, the Federal Researve supports the credit addict. On the other hand, long bond interest rates have held near 5.5% and do not give any indication of any lack of faith in U.S. debt. Lack of faith in debt results in very high rates, such as 36% in Argentina.
As long as other economies weaken more than the U.S. economy, the excess money overseas will continue to flow back to us, supporting the dollar, the stock market and the real estate market, and making it look like the stock market has a good reason to be bullish again.
In the background, however, are the continuing trade deficits pumping billions of dollars overseas each month, some of which returns to these shores as investment capital. The worldwide assumption seems to be that this can continue forever. Therefore, only when it is very obvious that it can't continue will it reverse direction, and it won't be a smooth transition. It will be a dramatic reversal, and any gold equity investment will look great, even if it's only a hole in the ground. (Mark Twain)
Last month I added a 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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