EagleWing Research Newsletter on Gold Funds
September 1, 2002
GLOBAL WATCH
Comparing Funds | Comments
August turned out to be a good month for gold investments as the recovery continued following July's slide. All gold funds gained as gold equities rebounded, some over 25% in one month.
The financial situation in Brazil remained relatively stable following a $30B loan from the IMF and the sudden demand for dollars in July vanished heading toward their October election. Reports from Argentina continued to be grim as official unemployment approached 30% and imports were cut drastically. Aid from the U.S. and the IMF may have prevented the situation from getting worse. Other areas such as the Middle East and Asia turned in a quiet month. Perhaps everyone is waiting to see what the U.S. will do about Iraq, if anything. With no other new unusual international demand for the dollar, the rally in July seems to have run its course, which in turn is allowing support for gold prices to reform.
In the U.S., there is some doubt about the strength of the recovery, but enthusiasm for real estate refinancing continued with only small indications that the housing boom might run out of steam soon. The Federal Reserve decided against changing the short term rate, but the market decided to go lower anyway. With strong demand for U.S. treasuries pushing the long bond yield below 5% to 4.93%, mortgage rates will be offering even lower rates than before. What a deal. Another large trade deficit, while not a new record, does not seem to have had much effect on the markets, although consumer confidence research indicates the public is starting to hold back on spending. The Dow closed down slightly for August, at 8663, and the CRB reached a yearly high at 219.20. Oil temporarily reached $30 before closing at 28.98.
Many analysts feel that the recent dollar rally is over for awhile, and we may have further to go down. The dollar index slipped slightly, closing at 106.8, with the yen closing at 118.5 yen/dollar.The euro ended the month at .981 after temporarily reaching parity with the dollar in July. Initial studies indicate that the lower dollar hasn't had much effect on increasing exports. That means we can expect more large deficits into the near future, along with a federal budget deficit.
The price of gold moved from 303.2 to over 314 before retesting 306 and closing at 312.4. Silver remained weak, sliding from 4.58 to 4.43, without appearing to have any positive thoughts. The weakening dollar is now allowing gold to set a base in the 303-306 area and possibly setting up another run at 320+.
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
11 MIDSX Midas Fund . 19.1 -14.9 52.2 47.3 3.8
5 FSAGX Fidelity Select Gold . 18.1 -12.6 52.7 69.9 65.4
16 TGLDX Tocqueville Gold . 18.0 -13.0 75.8 89.5 93.3
19 USAGX USAA Gold . 17.6 -15.6 62.5 89.6 86.1
8 GOLDX Gabelli Gold . 17.6 -15.4 73.1 96.4 93.8
9 LEXMX ING Pilgrim Pr Mtls A. 17.4 -15.2 62.7 77.8 62.2
4 EKWBX Evergreen Prec Mtls B. 17.2 -15.9 55.9 81.4 76.1
13 OPGSX Oppenheimer Gold A . 17.2 -16.3 29.3 42.3 30.9
20 INIVX Van Eck Intl Inv GoldA 17.1 -15.0 74.7 86.2 48.3
12 MNTGX Monterey OCM Gold . 17.0 -6.6 73.1 105.3 83.6
15 SCGDX Scudder Gold & Pr Mt S 16.7 -13.0 45.5 65.9 60.8
2 BGEIX Amer Cent Global Gold. 16.5 -17.0 61.7 91.2 58.6
3 INPMX AXP Precious Metals A. 16.3 -22.6 41.1 51.0 46.0
14 RYPMX Rydex Prec Metals . 16.0 -15.9 36.0 53.0
17 USERX US Global Gold Shrs . 15.6 -30.0 67.7 61.1 33.8
10 FGLDX INVESCO Gold . 15.3 -14.5 50.3 54.0 42.5
6 SGGDX First Eagle SGen Gold. 15.0 -10.7 90.8 118.0 105.5
18 UNWPX US Global World PrecM. 13.9 -32.4 69.1 43.4 11.9
7 FKRCX Franklin Gold & PrM A. 12.8 -17.7 22.8 33.5 34.3
21 VGPMX Vanguard Prec Metals . 12.1 -18.8 30.1 41.7 49.4
1 ASA ASA Ltd . 11.8 -20.1 74.9 88.1 83.5
Most funds were clustered in the 15% to 19% nav increase area as many gold equities showed 10-25% gains for the month. This translates directly into higher fund values.
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(8-30)
12 MNTGX Monterey OCM Gold . 67.7 8.17
6 SGGDX First Eagle SGen Gold. 61.6 11.14
16 TGLDX Tocqueville Gold . 53.0 21.94
5 FSAGX Fidelity Select Gold . 45.9 21.19
19 USAGX USAA Gold . 42.1 9.88
20 INIVX Van Eck Intl Inv GoldA 41.7 8.75
8 GOLDX Gabelli Gold . 40.3 10.37
9 LEXMX ING Pilgrim Pr Mtls A. 37.7 4.80
10 FGLDX INVESCO Gold . 36.1 2.48
15 SCGDX Scudder Gold & Pr Mt S 35.4 9.97
2 BGEIX Amer Cent Global Gold. 35.4 7.97
4 EKWBX Evergreen Prec Mtls B. 34.4 18.30
11 MIDSX Midas Fund . 31.0 1.37
14 RYPMX Rydex Prec Metals . 24.3 28.27
13 OPGSX Oppenheimer Gold A . 20.7 12.76
1 ASA ASA Ltd . 13.0 29.80
3 INPMX AXP Precious Metals A. 10.2 7.55
7 FKRCX Franklin Gold & PrM A. 9.4 11.60
17 USERX US Global Gold Shrs . 4.1 4.51
21 VGPMX Vanguard Prec Metals . 1.9 10.38
18 UNWPX US Global World PrecM. -2.7 8.54
Monterey OCM Gold (MNTGX) and First Eagle SoGen Gold (SGGDX) continue to retain most of their yearly advances and are now tacking on additional gains. After this month's move up, all funds but one are now above their 12 month averages.
The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of August 30) 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 . 467
21 VGPMX Vanguard Prec Metals . 410
1 ASA ASA Ltd . 286
2 BGEIX Amer Cent Global Gold. 271
7 FKRCX Franklin Gold & PrM A. 192
20 INIVX Van Eck Intl Inv GoldA 155
15 SCGDX Scudder Gold & Pr Mt S 109
10 FGLDX INVESCO Gold . 99
19 USAGX USAA Gold . 97
13 OPGSX Oppenheimer Gold A . 84
16 TGLDX Tocqueville Gold . 76
9 LEXMX ING Pilgrim Pr Mtls A. 70
8 GOLDX Gabelli Gold . 49
3 INPMX AXP Precious Metals A. 34
11 MIDSX Midas Fund . 34
6 SGGDX First Eagle SGen Gold. 33
18 UNWPX US Global World PrecM. 33
14 RYPMX Rydex Prec Metals . 31
12 MNTGX Monterey OCM Gold . 27
17 USERX US Global Gold Shrs . 21
4 EKWBX Evergreen Prec Mtls B. 15
After large losses in July, every fund gained substantially in August.
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
August rescued the gold funds from a very negative summer and has set them up for an advance if gold can push through $320 in September. The most important factor now is the strength of the dollar and whether it can create another rally like July's. A dollar rally would most likely put another hammer on gold prices.
On the other hand, gold equity prices made substantial selective gains for the month and in many cases more than just a rebound. It looks like intelligent money is once again looking at precious metals. While announcements about the trade and federal deficits don't seem to affect gold prices now, in the long run, they will. If the currency markets don't trim imports with higher prices and help exports due to a weakening dollar, then more deficits are in store for at least the near future. No one is arguing against this point. No currency in the history of civilized economies has been able to handle the large transfer of assets which we are seeing now, measured at about 4.5% of annual GDP. Once it becomes obvious, the effect is cumulative, like falling off a cliff. A depreciated currency always ends up in a higher gold price in that currency.
While I am not privileged to know the exact portfolios of each fund, it is possible to recognize the level of price movement and therefore the willingness of the management to invest in slow moving or fast moving equities. There is a definite difference in management techniques and policies between funds.
While 16 of the 21 funds are up over 50% in the two years since August 2000, First Eagle SoGen Gold (SGGDX) and Monterey Gold (MNTGX) are the only two funds which can show over 100% gain for the same time period.
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