EagleWing Research Newsletter on Gold Funds
September 1, 2001
GLOBAL WATCH
Comparing Funds | Comments
Each month I review events which I feel might have had, or might soon have an effect on the price of gold, either as a currency influence or as a direct affect on the commodity market. In some cases, I'm strictly feeling in the dark over possibilities, but in some other cases direct results show up later. The case of Argentina and IMF aid essentially demonstrates the fragility of a nation's currency when the economy is not handled well. In Argentina, excessive government spending built up a large national debt, and there is no politically easy solution. If Argentina is forced to default next year on its debt, many lenders will suffer, sending stress throughout currency trading. At the bottom line, the price of gold is inversely related to the strength of a currency, and it becomes obvious when the currency collapses.
Argentina and the IMF finally agreed to an aid package after a month's negotiations, but it doesn't solve the problem, just the immediate stress. The strong dollar has weakened over the last two months as the dollar index, measured by comparing with other currencies, has fallen from over 120 to about 113, down about 6%. Gold, if responding directly inverse to the dollar, should have increased 6% in dollars, to about 285. Since it didn't, that relationship is not as proportionate as some would think. It may instead indicate that gold is weaker than thought, and due for further descent if the dollar rallies.
In other matters, a strengthening yen may be driving the Japanese stock market Nikkei index to a series of 17 year lows. Japanese unemployment reached a record 5% as more companies laid off workers to survive. This could have a dramatic cultural and social impact in that country soon.
In the U.S., there were signs that the economy is in trouble as more layoffs were reported and the mobile home industry became the first to see record repossessions of recently sold items. Bankruptcy numbers are approaching those set two years ago. On the other hand, national income measurements continue to grow. The Federal Reserve lowered the short term federal funds rate for the seventh time in an attempt to promote investment activity, with very little to show for it so far. The long bond continued to edge up in value as many domestic and foreign investors decided it was a very good place to put their money. The long bond rate closed August at 5.37%. Because it's used as a major measurement for mortgage rates, the refinancing boom in real estate continued. So far, we have not seen repossessions in automobiles and homes.
For the month of August, the price of gold climbed from 266.2 to 274.4. After making a run to 279+ midmonth, it settles back, holding well above the 270 line. Silver, on the other hand, dipped to a new multiyear low at 4.12, and barely held above it by the end of the month, closing at 4.16. Meanwhile, gold funds gained with XAU advancing from 53.0 to 56.5.
COMPARING FUNDS
Global Watch | Comments
Funds ranked by percentage change in net asset value for August.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
21 USAGX USAA Gold . 6.7 4.1 16.7 14.5 64.8
7 FKRCX Franklin Gold A . 6.4 -7.0 8.7 9.4 58.0
17 SCGDX Scudder Gold . 6.4 -0.9 14.0 10.5 44.2
16 RYPMX Rydex Prec Metals . 6.3 -0.2 12.5
8 GOLDX Gabelli Gold . 5.8 -1.5 13.4 12.0 45.7
12 MNTGX Monterey OCM Gold . 5.8 5.8 18.6 6.1 33.3
2 BGEIX Amer Cent Global Gold. 5.8 5.8 17.4 -3.5 21.6
5 FSAGX Fidelity Select Gold . 5.6 2.3 11.3 7.7 57.4
4 EKWBX Evergreen Prec Mtls B. 5.6 0.2 16.4 13.0 41.8
13 OPGSX Oppenheimer Gold A . 5.6 -2.4 10.0 1.2 54.6
22 INIVX Van Eck Intl Inv GoldA 5.5 8.4 6.4 -15.7 -0.6
6 SGGDX First Eagle SGen Gold. 5.2 6.0 14.3 7.7 13.5
9 FGLDX INVESCO Strat Gold . 5.1 0.6 2.5 -5.2 21.3
15 LEXMX Pilgrim Prec Metals A. 5.0 0.3 9.3 -0.3 23.9
23 VGPMX Vanguard Gold/Pr Mtls. 4.2 -4.9 6.1 10.7 60.2
18 TGLDX Tocqueville Gold . 4.1 -0.1 7.8 10.0 51.8
11 MIDIX Midas Investors . 3.6 -1.0 0.5 -25.0 -25.8
10 MIDSX Midas Fund . 3.4 -2.2 -3.2 -31.8 -24.4
3 INPMX AXP Precious Metals A. 3.3 -3.1 7.0 3.5 34.2
19 USERX US Global Gold Shrs . 2.7 -5.3 -3.9 -20.2 -8.5
1 ASA ASA Ltd . 2.4 -10.7 6.7 4.0 44.5
20 UNWPX US Global World Gold . 1.4 -4.7 -15.6 -34.1 -29.6
14 PRPFX Permanent Portfolio . 1.3 0.4 -0.2 1.8 6.9
The top fund for August was USAA Gold (USAGX), steadily producing gains over the past three years in the face of a weak gold market and tumbling gold equities. While some funds have lost 20%, there are several, USAGX included, which have excellent advances. How does one select the best fund in which to invest? Three years ago, U.S. Global World Gold Fund (UNWPX) was among the top few, but since then it hasn't been too hot at its portfolio selection. It does appear to me that a fund which has grown over 50% in the last three years has something going for it.
It appears to me that the major gains were in portfolios more receptive to smaller capitalized equities and therefore more affected by the recovery of these same stocks from very low prices.
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)
14 Permanent Portfolio . 58.2 18.52
12 Monterey OCM Gold . 57.4 4.72
6 First Eagle SGen Gold. 57.4 5.84
21 USAA Gold . 52.8 6.08
2 Amer Cent Global Gold. 50.2 4.93
22 Van Eck Intl Inv GoldA 47.8 5.01
5 Fidelity Select Gold . 47.6 13.88
4 Evergreen Prec Mtls B. 35.2 11.74
9 INVESCO Strat Gold . 34.5 1.65
15 Pilgrim Prec Metals A. 32.1 2.95
17 Scudder Gold . 30.1 6.85
13 Oppenheimer Gold A . 26.3 9.87
16 Rydex Prec Metals . 24.3 20.79
8 Gabelli Gold . 23.5 5.99
23 Vanguard Gold/Pr Mtls. 20.8 7.98
18 Tocqueville Gold . 20.5 12.48
11 Midas Investors . 14.3 2.04
7 Franklin Gold A . 13.1 9.45
10 Midas Fund . 11.1 0.90
3 AXP Precious Metals A. 7.1 5.35
19 US Global Gold Shrs . -14.9 2.69
1 ASA Ltd . -19.9 17.60
20 US Global World Gold . -44.8 5.05
Even after three months of sliding gold bullion and equity prices, the valuation range of these funds is well above midrange for their 52 week highs and lows. In other words, they have been gradually moving into an uptrend.
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
23 Vanguard Gold/Pr Mtls. 310
5 Fidelity Select Gold . 212
2 Amer Cent Global Gold. 169
1 ASA Ltd . 169
7 Franklin Gold A . 163
22 Van Eck Intl Inv GoldA 101
17 Scudder Gold . 98
21 USAA Gold . 75
9 INVESCO Strat Gold . 62
13 Oppenheimer Gold A . 58
14 Permanent Portfolio . 54
15 Pilgrim Prec Metals A. 47
16 Rydex Prec Metals . 44
20 US Global World Gold . 40
10 Midas Fund . 33
3 AXP Precious Metals A. 30
19 US Global Gold Shrs . 22
12 Monterey OCM Gold . 12
8 Gabelli Gold . 12
18 Tocqueville Gold . 12
6 First Eagle SGen Gold. 10
4 Evergreen Prec Mtls B. 6
11 Midas Investors . 3
This statement deserves repeating, again: The total sum of these funds and other related gold funds is barely 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. As you can see, there is a big difference between management policies of different 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
Most international stock markets continued to show a descending pattern, including the Dow falling through 10,000 again. The NASDAQ fell past 2000 and showed no signs of going back up. Essentially, the weakening U.S. economy was letting most of the steam out of the stock market bubble which had built up over the past five years, particularly in the tech area.
The base in most gold stocks and gold prices was set last November, with a test reached in late March. Since then, a rally into May was mostly deflated through June and July. August demonstated that there was something left in the gold market, but it still remains to be convincing. The refusal of gold to rally much as the dollar weakened is not a bullish sign and should make investors cautious. A continuing weak economy would not be good for gold either. Only when the dollar proves to be weaker will the long bond no longer be a favorite resting place for assets and the interest rate will increase. Therefore, only with a falling dollar index and a rising long bond rate will conditions be ripe for gold to make a substantial move.
Silver has plunged into new lows recently and has been predicted to fall to 3.75. As a result, most silver mine values have plunged also. This makes them particularly available as undervalued stocks if gold should rally. Silver will recover somewhat if gold does. They are bound loosely together and one cannot run off much without the other following.
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