EagleWing Research Newsletter on Gold Funds
August 1, 2002
GLOBAL WATCH
Comparing Funds | Comments
In the international arena, it was more of last month. It seems that all of the hotspots cooled off enough to be overlooked by the gold market. Pakistan and India handled another potential conflict over Kashmir, Brazil was thought to be successfully managing its situation with the IMF, and the Israeli-Palestinian conflict didn't get any worse. As mentioned last month, a lessening of worldwide tensions creates less need for precious metals in the short term.
The financial situation in Brazil has become much worse than imagined just two months ago, influenced partially by the coming election and the fear that the leading politicians are leftist leaning and may cast doubt on their attitude toward national debt. Brazil was thought to have a much better financial foundation than Argentina and therefore would easily work its way through any currency or debt crisis. However, the currency, the real, has fallen to a record low, and is putting pressure on the debt structure, a large amount of which is in dollars. Similar to a deteriorating economy in Argentina, where the currency is down 70%, Brazil is starting to experience commercial and import/export deadlocks, and enough will cause the economies of the entire continent to stop just short of lockup. Whether the IMF will offer assistance is still up in the air.
U.S. economic statistics were adjusted for the second quarter, corrected downward to an annual growth rate of only 1.1%, showing that the recovery wasn't nearly as robust as thought, assuming there is a recovery. A major part of this growth was federal spending. Meanwhile, another record trade deficit of over $37 billion can't be good for the economy in the long run, and the housing market, while still strong, began to show signs of topping out.
The bankruptcy of WorldCom and fears of other debt defaults have certainly plagued the stock market, plunging the Dow below 8000 before rallying back to close at 8736. Meanwhile, a relatively small dollar rally pushed the euro down from over parity to .978 and the yen back down to almost 120 yen/dollar. This rally in the dollar, for whatever reason, was instrumental in deflating the gold funds. With the Dow plunging, a new record trade deficit, and interest rates still low, there wasn't much justification for a stronger dollar. Somehow, that didn't make any difference. Enough investment managers went long on the dollar and gold stocks fell out of bed.
For July, the price of gold climbed from 313.5 to 323.9 before rolling over to close at 303.2. Silver advanced from 4.83 to 5.07 before ending at 4.59. The XAU index rallied from 71.4 to 78.2 before collapsing to 55.7 before closing at 60.5. Buying in the 30 year bond increased, dropping the interest rate from 5.51% to 5.37%. The price of oil climbed slightly from 26.86 to 27.02.
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
12 MNTGX Monterey OCM Gold . -11.9 -5.3 56.5 83.2 66.6
1 ASA ASA Ltd . -12.6 -16.3 61.6 87.7 87.3
6 SGGDX First Eagle SGen Gold. -14.0 -4.6 74.6 107.1 84.6
10 FGLDX INVESCO Gold . -14.7 -11.9 36.9 38.7 27.2
11 MIDSX Midas Fund . -14.8 -13.5 32.2 30.7 -8.0
14 RYPMX Rydex Prec Metals . -15.8 -15.5 24.7 39.7
8 GOLDX Gabelli Gold . -16.3 -14.2 55.8 81.5 75.7
9 LEXMX ING Pilgrim Pr Mtls A. -16.4 -10.9 45.6 62.9 44.0
7 FKRCX Franklin Gold & PrM A. -16.8 -18.7 15.8 30.1 23.9
5 FSAGX Fidelity Select Gold . -16.9 -13.7 36.6 50.6 46.2
21 VGPMX Vanguard Prec Metals . -17.0 -16.8 20.9 41.9 32.2
19 USAGX USAA Gold . -17.0 -13.3 47.4 72.8 62.5
16 TGLDX Tocqueville Gold . -17.3 -12.6 55.1 72.5 73.5
15 SCGDX Scudder Gold & Pr Mt S -17.5 -11.9 32.6 54.7 42.6
2 BGEIX Amer Cent Global Gold. -17.5 -13.2 46.8 68.5 46.1
4 EKWBX Evergreen Prec Mtls B. -18.3 -13.0 40.4 68.2 56.7
13 OPGSX Oppenheimer Gold A . -18.5 -17.9 16.5 32.0 16.6
20 INIVX Van Eck Intl Inv GoldA -18.7 -11.0 57.3 64.2 30.8
3 INPMX AXP Precious Metals A. -20.9 -16.9 25.3 45.8 28.8
17 USERX US Global Gold Shrs . -26.1 -19.8 48.9 47.7 21.9
18 UNWPX US Global World PrecM. -28.1 -16.5 50.6 30.9 2.4
Two months is enough correction for most funds. However, there isn't much indication that there won't be further erosion in the net gains for the year. Monterey OMC Gold (MNTGX) has been the leader for the last two months due to losing the least, and that's a lot better than the major hits taken by the two US Global funds (USERX, UNWPX) which were world beaters back in May.
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)
6 SGGDX First Eagle SGen Gold. 26.6 9.69
12 MNTGX Monterey OCM Gold . 25.1 6.98
16 TGLDX Tocqueville Gold . 8.9 18.60
20 INIVX Van Eck Intl Inv GoldA 2.9 7.47
8 GOLDX Gabelli Gold . 1.4 8.82
19 USAGX USAA Gold . 1.4 8.40
2 BGEIX Amer Cent Global Gold. -0.6 6.84
5 FSAGX Fidelity Select Gold . -0.9 17.95
10 FGLDX INVESCO Gold . -3.6 2.15
9 LEXMX ING Pilgrim Pr Mtls A. -4.5 4.09
4 EKWBX Evergreen Prec Mtls B. -6.2 15.61
15 SCGDX Scudder Gold & Pr Mt S -10.4 8.54
1 ASA ASA Ltd . -13.5 26.79
14 RYPMX Rydex Prec Metals . -18.6 24.37
11 MIDSX Midas Fund . -19.5 1.15
17 USERX US Global Gold Shrs . -25.3 3.90
3 INPMX AXP Precious Metals A. -28.4 6.49
18 UNWPX US Global World PrecM. -28.5 7.50
13 OPGSX Oppenheimer Gold A . -29.3 10.89
7 FKRCX Franklin Gold & PrM A. -30.7 10.28
21 VGPMX Vanguard Prec Metals . -40.7 9.26
Only two funds have retained most of their gains for the past 12 months, Monterey OCM Gold (MNTGX) and First Eagle SoGen Gold (SGGDX). Most are below their yearly average, but still showing positive net gain since last summer. One reason for the negative numbers is the level of highs set in May and June for most of these funds, making a fallback statistically below the 12 month average. Of course, that makes the holding action by SGGDX and MNTGX that much more impressive.
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. 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 FSAGX Fidelity Select Gold . 396
21 VGPMX Vanguard Prec Metals . 366
1 ASA ASA Ltd . 257
2 BGEIX Amer Cent Global Gold. 232
7 FKRCX Franklin Gold & PrM A. 170
20 INIVX Van Eck Intl Inv GoldA 132
15 SCGDX Scudder Gold & Pr Mt S 93
10 FGLDX INVESCO Gold . 86
19 USAGX USAA Gold . 83
13 OPGSX Oppenheimer Gold A . 72
16 TGLDX Tocqueville Gold . 64
9 LEXMX ING Pilgrim Pr Mtls A. 59
8 GOLDX Gabelli Gold . 41
3 INPMX AXP Precious Metals A. 29
11 MIDSX Midas Fund . 29
6 SGGDX First Eagle SGen Gold. 29
18 UNWPX US Global World PrecM. 29
14 RYPMX Rydex Prec Metals . 27
12 MNTGX Monterey OCM Gold . 23
17 USERX US Global Gold Shrs . 18
4 EKWBX Evergreen Prec Mtls B. 12
In the last two months, over $200 million has been lost in net asset values by these funds, but if you own one of these, you don't need to be told.
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 SGGDX First Eagle SGen Gold. 1.55
17 USERX US Global Gold Shrs . 1.47
18 UNWPX US Global World PrecM. 1.45
2 BGEIX Amer Cent Global Gold. 1.41
8 GOLDX Gabelli Gold . 1.39
20 INIVX Van Eck Intl Inv GoldA 1.35
12 MNTGX Monterey OCM Gold . 1.33
19 USAGX USAA Gold . 1.28
16 TGLDX Tocqueville Gold . 1.22
4 EKWBX Evergreen Prec Mtls B. 1.17
9 LEXMX ING Pilgrim Pr Mtls A. 1.13
1 ASA ASA Ltd . 1.12
5 FSAGX Fidelity Select Gold . 1.04
10 FGLDX INVESCO Gold . 1.02
3 INPMX AXP Precious Metals A. 1.01
15 SCGDX Scudder Gold & Pr Mt S 0.91
11 MIDSX Midas Fund . 0.91
14 RYPMX Rydex Prec Metals . 0.89
13 OPGSX Oppenheimer Gold A . 0.75
7 FKRCX Franklin Gold & PrM A. 0.69
21 VGPMX Vanguard Prec Metals . 0.57
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.
If you can't stand the thought of big ups and downs, don't buy a fund with a high beta.
INVESTING COMMENTS
Global Watch | Comparing Funds
July became the second month to have double digit percentage losses in most gold funds. This was obviously caused by losses in gold mining stocks, as all major gold equities took significant hits, including those in South Africa. One reason for the losses in South African stocks was the weak rand, but ASA was had a relatively small loss, so that's not the whole story.
First Eagle SoGen Gold (SGGDX) was not only one of the leaders in the spring rally, but they have been able to maintain most of their asset gains. It remains the only fund up over 100% for the last two years.
A correction from the recent runup was expected in June and early July, but the ferocity of the deflating of gold equities was very unusual. Some lost over 40% in three weeks, as if a major event had happened. In mid-month while gold tried to rally, the absence of a follow-through by gold equities was an indication that some investors were not convinced and ready to take profits. A few days later, gold followed stocks down. That shows that gold equities don't always follow the price of gold over a very short term. It is often the other way around.
The purpose of mentioning international currency problems is that the dollar is often a safe haven for foreign investors, and the Brazilian real fell a few days after the dollar started to rally, as if Brazilian money was fleeing into dollars. If the current situation in Brazil gets much worse, expect the dollar to remain strong and gold to remain weak. However, at some point, Brazil will recover and the dollar will lose some of its support.
If gold has an economically fundamental reason to gain against the dollar, gold equities and funds should eventually recover. I think that except for troubled economies such as Brazil, the dollar will trade lower and gold higher in the long run.
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