EagleWing Research Newsletter on Gold Funds
September 1, 2000
GLOBAL FACTORS
Comparing Funds | Comments
The U.S. economy remained robust as interest rates continued to slowly descend with the unemployment rate low. As a result, the stock market held its recent upward trend and the dollar remained strong. The long bond rate closed the month at 5.67%, well below the Fed's short term rate at 6.5%, unchanged for the month. The U.S. trade deficit exceed $30 billion once again, but had little effect on the markets, interest rates, or gold.
In Europe, the euro continued to slide, reaching a new low at 88.8 cents, U.S., and causing the European Bank to raise its loan rate .25% to 4.5%, still much below the U.S. at 6.5%. The U.K pound reached a new seven year low against the dollar at 1.45 dollars per pound, another indication that the dollar was still reigning supreme. As mentioned before, gold looks good in most all other currencies except the U.S. dollar.
Japan's latest report on its debt showed that debt was over 100% of its GDP, but Japan was not running international trade deficits like the U.S. which makes us still the largest debtor nation by far. Economists are still arguing over the meaning of both of these relationships, and either could spiral into an international crisis of enormous proportions.
Japan raised its interest rates slightly for the first time in ten years, but it didn't have any apparent effect on gold prices, either. However, because of its unique nature, such a move may have other effects later as currencies adjust.
Because more and more countries are considering a dollarization of their currency or switching to a currency board to stabilize their failing currency, the demand for dollars as currency has at least partially covered the large flow of greenbacks overseas from our trade deficit.
For the month, gold cycled from 276.8 to 271.6, up to 277, back down to 271.1 (new ten month low), and closed with a strong move back up to 278.3. Although it looks like it could go in either direction, the price of gold is beginning to appear like it doesn't want to go down much further, and the advance in the last two weeks is a positive sign for the near term.
Silver opened and closed at 5.00, but during the month fell to 4.83, a new annual low. The XAU started at 50.8, teased with the all-time low of 48.8 by touching 49.5, rallied slightly above 54, returned to 50.5, and closed at 52.3, remaining within a relatively narrow trading range. Movement in gold funds was similarly within a narrow range as all gold funds took advantage of the latest rally and posted a gain for the month.
COMPARING FUNDS
Global Factors | Comments
Funds ranked by percentage change in net asset value for August.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
3 INPMX Amer Exp IDS Prc Mtl A 12.4 9.9 -3.3 24.2 -42.0
25 VGPMX Vanguard Gold/Pr Mtls. 12.2 19.4 4.3 50.9 -18.4
1 ASA ASA Ltd . 10.6 10.6 -3.0 34.7 -35.7
6 FKRCX Franklin Gold A . 10.0 8.2 0.6 45.3 -22.0
18 SGGDX SoGen Gold . 9.2 2.6 -5.7 -0.7 -39.9
17 SCGDX Scudder Gold . 8.9 5.3 -3.1 26.5 -38.6
4 EKWBX Evergreen Prec Mtls B. 8.7 6.0 -2.9 21.9 -41.4
14 OPGSX Oppenheimer Gold A . 8.7 6.4 -8.0 40.5 -26.3
7 GOLDX Gabelli Gold . 8.6 7.5 -1.3 28.5 -40.3
23 GRFRX Van Eck Gold / Res A . 7.8 0.0 -10.6 5.4 -48.5
9 LEXMX Lexington Goldfund . 7.6 4.7 -8.8 13.4 -41.5
19 TGLDX Tocqueville Gold . 7.4 8.1 2.0 40.9
22 USAGX USAA Gold . 7.2 7.0 -1.9 41.2 -29.0
20 USERX US Global Gold Shrs . 6.1 0.0 -16.9 -4.8 -70.6
16 RYPMX Rydex Prec Metals . 6.0 -2.0
12 MIDIX Midas Investors . 5.7 -3.8 -25.4 -26.2 -67.3
11 MIDSX Midas Fund . 5.7 -2.1 -29.5 -23.5 -73.5
10 STSLX Lexington Strat Silver 5.5 0.4 -11.0 4.2 -34.9
5 FSAGX Fidelity Sel Gold . 4.6 5.3 -3.3 41.4 -38.5
13 MNTGX Monterey OCM Gold . 4.5 -3.4 -10.6 12.4 -42.4
21 UNWPX US Global World Gold . 4.0 -4.9 -21.9 -16.6 -61.1
8 FGLDX INVESCO Strat Gold . 3.9 1.9 -7.5 18.4 -57.2
24 INIVX Van Eck Intl Inv GoldA 3.3 -1.1 -20.7 -6.5 -50.7
2 BGEIX Amer Cent Global Gold. 2.7 -0.2 -17.8 3.6 -50.3
15 PRPFX Permanent Portfolio . 2.1 2.9 2.0 7.1 5.1
The month of August finished strong enough to give every gold fund a gain for the month, which would be nice if it continues.
A statistical fact you may notice here is that since August 31, 1998, most funds have posted a substantial gain, some over 40% for the two year period. That date marks the disruptive market just before the Fed stepped in to help a major international hedge fund and eventually adding much more credit to the U.S. market. The Dow and NASDAQ took off and gold rallied back above 300.
That one comparison may be the best indication of which funds have the best analysts and portfolio managers.
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(8-31)
15 Permanent Portfolio . 39.2 18.56
25 Vanguard Gold/Pr Mtls. -7.2 7.52
6 Franklin Gold A . -40.4 8.69
19 Tocqueville Gold . -52.1 11.58
1 ASA Ltd . -56.1 16.93
7 Gabelli Gold . -58.1 5.28
17 Scudder Gold . -58.3 6.01
3 Amer Exp IDS Prc Mtl A -60.9 5.00
4 Evergreen Prec Mtls B. -66.4 10.09
22 USAA Gold . -67.3 5.21
18 SoGen Gold . -69.8 5.11
14 Oppenheimer Gold A . -70.0 8.97
10 Lexington Strat Silver -70.1 2.50
9 Lexington Goldfund . -72.3 2.70
5 Fidelity Sel Gold . -74.2 12.47
23 Van Eck Gold / Res A . -79.5 2.36
12 Midas Investors . -82.0 2.03
16 Rydex Prec Metals . -83.1 18.48
8 INVESCO Strat Gold . -84.2 1.61
20 US Global Gold Shrs . -84.5 2.80
13 Monterey OCM Gold . -86.3 3.98
11 Midas Fund . -87.5 0.93
21 US Global World Gold . -90.4 5.98
24 Van Eck Intl Inv GoldA -90.8 4.71
2 Amer Cent Global Gold. -92.7 4.20
The bottom may have been reached during the past two months as gold equities and the price of gold have been leveling off and holding close to or above prices reached in late May. The XAU refused to penetrate its low and was a good omen for the rest of the market. As a result, all funds are up from their lows and the advance during the last week of August was a good start.
The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of August 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
25 Vanguard Gold/Pr Mtls. 312
6 Franklin Gold A . 215
1 ASA Ltd . 176
5 Fidelity Sel Gold . 135
2 Amer Cent Global Gold. 131
24 Van Eck Intl Inv GoldA 124
17 Scudder Gold . 89
22 USAA Gold . 80
8 INVESCO Strat Gold . 71
14 Oppenheimer Gold A . 69
15 Permanent Portfolio . 59
9 Lexington Goldfund . 50
21 US Global World Gold . 47
11 Midas Fund . 45
3 Amer Exp IDS Prc Mtl A 35
23 Van Eck Gold / Res A . 28
16 Rydex Prec Metals . 26
10 Lexington Strat Silver 19
20 US Global Gold Shrs . 18
7 Gabelli Gold . 14
4 Evergreen Prec Mtls B. 13
18 SoGen Gold . 12
19 Tocqueville Gold . 11
12 Midas Investors . 5
13 Monterey OCM Gold . 1
The in-house beta 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
11 Midas Fund . 1.52
21 US Global World Gold . 1.39
20 US Global Gold Shrs . 1.31
23 Van Eck Gold / Res A . 1.26
2 Amer Cent Global Gold. 1.23
24 Van Eck Intl Inv GoldA 1.19
16 Rydex Prec Metals . 1.18
13 Monterey OCM Gold . 1.09
12 Midas Investors . 1.06
3 Amer Exp IDS Prc Mtl A 1.05
18 SoGen Gold . 1.01
1 ASA Ltd . 1.01
14 Oppenheimer Gold A . 0.97
7 Gabelli Gold . 0.96
5 Fidelity Sel Gold . 0.95
32 Lexington Strat Invest 0.94
28 Fidelity Sel Prec Mtls 0.91
9 Lexington Goldfund . 0.91
31 Pioneer Gold A . 0.88
19 Tocqueville Gold . 0.87
4 Evergreen Prec Mtls B. 0.87
6 Franklin Gold A . 0.86
22 USAA Gold . 0.85
8 INVESCO Strat Gold . 0.82
25 Vanguard Gold/Pr Mtls. 0.74
17 Scudder Gold . 0.71
29 PIMCO Adv Prc Mtls C . 0.69
30 Morgan St DW Prc Mtls. 0.62
10 Lexington Strat Silver 0.61
33 United Gold / Govt . 0.40
15 Permanent Portfolio . 0.17
*** 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 six months. When the market turns, I would expect the funds at the top to make the biggest moves. For comparison, some of the recently expired funds are left on this list.
INVESTING COMMENTS
Global Factors | Comparing Funds
The latest rally moved at times even as the dollar remained strong, which is unusual, and which may be indicating that the increasing value of gold in other currencies is beginning to have an influence even in term of dollars. This would be an eye-opener for many bankers and a major trend change.
What we are seeing on an international scale is a list of events and situations around the world which would normally have some effect on the price of precious metals, but so far, don't. History is full of such cases where one small incident causes the landslide and then all of the experts try and get on the bandwagon.
It's obvious that the trade deficit cannot continue at $30+ billion each month. We will eventually run out of money. Sometime before that happens, the rest of the world's bankers will change the trend and the dollar will come crashing down, weighed down by over a trillion overseas dollar bills. Such an event would cause an international crisis not seen for decades. Precious metals will then be the obvious choice.
The weakness in the euro and pound due to the strong dollar won't continue much longer without the Europeans doing something or complaining to the U.S. government. What will we do then, or what will they do?
With oil going up, now past the $33 level, inflation will eventually become apparent, slowing the stock market, and weakening the dollar. If that happens, will foreign investors continue to invest in the U.S. or will they move their investments elsewhere?
With small gold mines closing worldwide, when do we reach the point where demand requires higher prices? Demand has exceeded production for years and only a supply from gold depositories such as central bank vaults has kept demand under control.
Reportedly, although I cannot verify this, there is a large amount of gold shorted into the market which would have a very difficult time matching buy orders if there were a major disruptive economic event.
In any case, we can expect no new economic policy from the U.S. government until after the November election. Any trend change will have to come from the international arena.
|