EagleWing Research Newsletter on Gold Funds
October 1, 2000
GLOBAL FACTORS
Comparing Funds | Comments
The month of September saw the euro drop to a point where central bankers were alarmed enough to intervene in the currency markets, and saw the price of oil climb above $38, enough to have the U.S. government intervene to keep the market price down. It also saw the U.S. long term bond interest rate bottom at 5.67% and close the month at a two month high of 5.88% and climbing. Even after the intervention, most analysts felt that the euro would turn down again and slip even more, and Denmark voted not to participate in the euro as a currency. Oil, on the other hand, was quick to drop to $30 from $37, but soon leveled off and closed the month moving back above $31.
With the price of oil reaching levels not seen for years, and most producers near full capacity already, there is not much room for manuevering. Threatening to use the U.S. oil reserve effectively dropped the trading price, but it appears to be only a short term remedy. Even the most optimistic forecast of the price of oil isn't lower than $25 and most analysts feel it will once again move back up.
The new record U.S. trade deficit approached $40 billion for the month of July, near an annual rate of 4% of GDP. The intervention in the euro trading was hastened somewhat by the claims of some U.S. industrial representatives that it was becoming very difficult to export to Europe due to exchange rates, and there were signs of weakening earnings for companies which expected to do so. At the end of the month, both Yahoo and Apple had experienced major drops in stock price due to bad predicted earnings, and other high tech stocks were ready to join in the declines. Dot-com companies were finding it difficult to show earnings even with a record IPO year already.
The U.S. economy continued to be on cruise control with low inflation and low unemployment, but the stock market refused to move back into high gear, and, while holding onto most of its gains, was still down about 4% for the year. The price of gold is only down about 5%. The big difference is the value of gold equities, which have plunged much more than the price of gold would suggest.
For the month, gold fell from 278.3 to a new annual low of 269 before rallying back to 278, closing once again in a descent at 273.6. The XAU index rallied from 52.3 to above 54 before setting a new all-time low at 48.6 and threatening to set yet another low as it closed at 49.9. Silver dropped from 5.00 to 4.83 before closing at 4.89. The long bond rate began a steady climb from 5.67% to 5.88% as it once again moved above the ten year bond rate.
COMPARING FUNDS
Global Factors | Comments
Funds ranked by percentage change in net asset value for September.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
18 SGGDX SoGen Gold . -0.2 -1.5 -23.9 -19.1 -42.3
1 ASA ASA Ltd . -1.1 3.9 -16.7 -12.0 -39.7
15 PRPFX Permanent Portfolio . -1.3 0.3 -2.6 0.2 -0.9
7 GOLDX Gabelli Gold . -4.5 -4.4 -25.2 -18.3 -44.5
17 SCGDX Scudder Gold . -4.7 -3.9 -21.3 -12.7 -42.0
4 EKWBX Evergreen Prec Mtls B. -4.8 -4.7 -26.8 -19.5 -46.5
2 BGEIX Amer Cent Global Gold. -5.0 -10.5 -38.8 -35.6 -56.1
19 TGLDX Tocqueville Gold . -5.0 -4.9 -20.1 -0.6
13 MNTGX Monterey OCM Gold . -5.0 -11.5 -30.4 -29.6 -47.3
16 RYPMX Rydex Prec Metals . -5.5 -10.2
9 LEXMX Lexington Goldfund . -5.6 -6.9 -29.2 -22.7 -44.1
5 FSAGX Fidelity Sel Gold . -5.9 -7.6 -27.7 -14.2 -46.6
12 MIDIX Midas Investors . -5.9 -9.9 -32.5 -39.0 -69.3
10 STSLX Lexington Strat Silver -6.0 -4.5 -25.4 -20.1 -44.4
24 INIVX Van Eck Intl Inv GoldA -6.2 -11.6 -35.3 -37.0 -55.7
23 GRFRX Van Eck Gold / Res A . -6.4 -5.6 -33.2 -31.8 -54.4
20 USERX US Global Gold Shrs . -6.4 -10.3 -38.9 -36.1 -71.9
11 MIDSX Midas Fund . -6.5 -9.4 -43.5 -48.7 -76.2
14 OPGSX Oppenheimer Gold A . -6.5 -4.7 -28.2 -10.5 -34.6
6 FKRCX Franklin Gold A . -7.1 -3.9 -20.9 -3.5 -30.7
25 VGPMX Vanguard Gold/Pr Mtls. -7.2 2.5 -19.7 0.5 -27.7
22 USAGX USAA Gold . -7.3 -7.8 -27.3 -13.9 -37.9
8 FGLDX INVESCO Strat Gold . -8.1 -11.4 -29.5 -26.0 -62.2
3 INPMX Amer Exp IDS Prc Mtl A -9.0 -5.6 -28.3 -19.9 -49.9
21 UNWPX US Global World Gold . -10.2 -16.5 -44.4 -45.8 -66.5
The month of September was a bitter disappointment for many funds which suffered through some gold equities falling out of bed. The short rally which began in August died early in September, and only a short jump in gold gave any life at all for the month. Again, even a rally in gold could not excite many of the gold stocks. The difference in investing style or techniques is apparent in some cases.
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(9-29)
15 Permanent Portfolio . 12.7 18.32
25 Vanguard Gold/Pr Mtls. -46.4 6.98
1 ASA Ltd . -60.0 16.75
18 SoGen Gold . -70.5 5.10
6 Franklin Gold A . -72.2 8.07
19 Tocqueville Gold . -73.7 11.00
7 Gabelli Gold . -75.7 5.04
17 Scudder Gold . -82.1 5.73
4 Evergreen Prec Mtls B. -86.3 9.61
12 Midas Investors . -92.2 1.91
9 Lexington Goldfund . -92.8 2.55
3 Amer Exp IDS Prc Mtl A -92.9 4.55
8 INVESCO Strat Gold . -93.0 1.48
14 Oppenheimer Gold A . -93.8 8.39
16 Rydex Prec Metals . -94.5 17.46
24 Van Eck Intl Inv GoldA -94.8 4.42
11 Midas Fund . -95.2 0.87
13 Monterey OCM Gold . -95.3 3.78
10 Lexington Strat Silver -95.6 2.35
22 USAA Gold . -96.0 4.83
2 Amer Cent Global Gold. -96.2 3.99
20 US Global Gold Shrs . -96.2 2.62
5 Fidelity Sel Gold . -96.4 11.74
23 Van Eck Gold / Res A . -96.4 2.21
21 US Global World Gold . -99.2 5.37
After XAU rallied after dipping below 50 in August, it appeared at that time that we were seeing a final bottom, but we were wrong once again. By the end of September, almost half of the funds had reached yet another 52 week low, and many were still lingering. The only bright spot was the surge in gold above 278 during the last week of the month, but even then it gave up its gains rather quickly.
It wasn't long ago (May) that US Global World Gold (UNWPX) and Vanguard Gold (VGPMX) were the same value. They obviously have different portfolios and investment management techniques.
The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of September 29) 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. 290
6 Franklin Gold A . 200
1 ASA Ltd . 174
5 Fidelity Sel Gold . 127
2 Amer Cent Global Gold. 124
24 Van Eck Intl Inv GoldA 116
17 Scudder Gold . 85
22 USAA Gold . 75
8 INVESCO Strat Gold . 65
14 Oppenheimer Gold A . 65
15 Permanent Portfolio . 58
9 Lexington Goldfund . 47
11 Midas Fund . 42
21 US Global World Gold . 42
3 Amer Exp IDS Prc Mtl A 32
23 Van Eck Gold / Res A . 26
16 Rydex Prec Metals . 25
10 Lexington Strat Silver 18
20 US Global Gold Shrs . 17
7 Gabelli Gold . 14
18 SoGen Gold . 12
4 Evergreen Prec Mtls B. 12
19 Tocqueville Gold . 10
12 Midas Investors . 4
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 . 1.57
21 US Global World Gold . 1.56
20 US Global Gold Shrs . 1.33
2 Amer Cent Global Gold. 1.31
24 Van Eck Intl Inv GoldA 1.30
23 Van Eck Gold / Res A . 1.24
16 Rydex Prec Metals . 1.19
13 Monterey OCM Gold . 1.12
12 Midas Investors . 1.11
3 Amer Exp IDS Prc Mtl A 1.02
18 SoGen Gold . 0.98
1 ASA Ltd . 0.98
8 INVESCO Strat Gold . 0.96
14 Oppenheimer Gold A . 0.94
7 Gabelli Gold . 0.93
5 Fidelity Sel Gold . 0.92
32 Lexington Strat Invest 0.91
9 Lexington Goldfund . 0.89
28 Fidelity Sel Prec Mtls 0.88
31 Pioneer Gold A . 0.85
19 Tocqueville Gold . 0.84
4 Evergreen Prec Mtls B. 0.84
22 USAA Gold . 0.84
6 Franklin Gold A . 0.83
25 Vanguard Gold/Pr Mtls. 0.71
17 Scudder Gold . 0.69
29 PIMCO Adv Prc Mtls C . 0.66
10 Lexington Strat Silver 0.63
30 Morgan St DW Prc Mtls. 0.60
33 United Gold / Govt . 0.38
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
A free market which reaches a point were governments intervene is certainly out of balance and is trying to tell us that it cannot continue in the same direction forever. Even so, interventions can be a dampener on the existing market forces but not always a very efficient brake. The market usually corrects itself but this correction can be rough. Some of the current trends will have to slow and probable reverse to get back to an equilibrium condition.
The current long bond rate is giving the appearance of reversing from a descending rate, to once again, a climbing interest rate, which often indicates approaching inflationary forces. Of course, the tripling of oil prices would tell you the same thing.
The rally in gold which began in August completely exhausted gold equities as many of them acted like gold was going to drop off the edge of the table. XAU, for instance, was quick to drop with every small loss in the price of metals, and was slow to give any indication that it was ready to rally when gold surged for a few days. The fact that most funds are near annual lows and the XAU is teasing us with another all-time low as gold stubbornly holds above 270, well above its low of 252, is an indication that precious metals equities, including silver, are grossly underevaluated at this level.
As mentioned earlier, the growing U.S. trade deficit cannot be economically sustained, and there is no indication that anything can be done to reverse it, or even slow it down. When it reverses, it will be a train wreck as trillions of dollars owned by central banks try to get out at the same time.
The euro rescue pushed the currency from about .83 to .88 dollars but it quickly stopped and resumed its decline. Because this currency drift has closely coincided with the decline in gold, a weak euro seems to indicate further gold weakness. This would be based mostly on the relative strength of the dollar, not necessarily the weakness of the euro. As long as the weak euro indicates a strong dollar, gold will probably remain weak also.
With high tech stocks beginning to look like few of them will report any earnings in the near future, their star is dimming, even as billions continue to flow into IPO's. Overinflated stock prices are returning to earth from the atmosphere, and this affects the entire market attitude. As long as billions of dollars from somewhere flow into the stock market and into IPO's, the stock market will probably keep from falling. However, if that flow should slow or stop, the bubble will deflate, the market will decline, and gold will once again be a major international asset.
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