EagleWing Research Newsletter on Gold Funds
November 1, 2000
GLOBAL FACTORS
Comparing Funds | Comments
The conflict in Israel continued to boil over as both sides were adamant in their attitudes toward the other. This could turn into something extremely ugly in the Middle East, potentially overflowing into Europe and Asia, not to mention the U.S. Besides the destruction of both sides, the most obvious result could be a curtailment in the flow of oil to the rest of the world, and since current demand is unusually high everywhere, one arab producer could dramatically affect the overall supply, pushing the price over $40, perhaps $50. This looks very similar to 1973-74 when the price of oil doubled, a war in the Middle East erupted, domestic interest rates jumped enough to put a brake on the stock markets which rolled over for several years, the real estate bubble burst, and a president was in serious trouble. The sequence is not the same, but many events seem to be repeating.
A new financial factor became apparent in the past month as the market for corporate debt has fallen enough to require higher interest rates for new bonds. This is a major economic statistic which shows an undercurrent of disbelief in the current situation, and which will soon affect coming domestic rates for consumers. It is at least partially due to the increase in the price of gas and heating oil with the winter approaching.
Except for a few days at the end of the month, the dollar maintained its strong position around the world. Other currencies were almost all losing with the dollar being the only gainer. In fact, while the dollar index closed near 117, most other currencies were down from 15% to 30% for the year. Meanwhile, the U.S. trade deficit remains over 30B each month and will probably increase due to the price of oil. Since we import about 60% of our consumption, a rising price will add even more to the deficit with no advantage to us.
The euro fell to nearly .82 and closed the month at .84, down about 16% for the year and in step with most other currencies when measured against the dollar. Inflation began to appear in the price of products, but was denied by government statistics as if they were from another planet.
Just when it looked like gold was holding above 270, it fell through with very little effort. Gold equities acted like they were going slowly bankrupt, which might not be far from the truth. In effect we are seeing an industry falling on its knees with no help in sight unless the dollar reverses its strong trend.
For the month, gold dropped gradually from 273.6 to 264.9 and silver from 4.89 to 4.75. The XAU index fell from 49.9 to 42.8 before closing the month at 43.8, down over 12% for the month. Meanwhile the long bond rate fell back slightly as the bond showed no evidence of a lack of worldwide demand for the dollar and U.S debt, closing at 5.79%.
COMPARING FUNDS
Global Factors | Comments
Funds ranked by percentage change in net asset value for October.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
15 PRPFX Permanent Portfolio . -2.1 -1.3 -4.0 -2.3 0.1
25 VGPMX Vanguard Gold/Pr Mtls. -4.3 -0.3 -15.1 -4.8 -17.5
23 GRFRX Van Eck Gold / Res A . -5.0 -4.1 -27.6 -34.6 -47.8
3 INPMX Amer Exp IDS Prc Mtl A -5.3 -3.1 -22.3 -24.5 -44.6
6 FKRCX Franklin Gold A . -5.3 -3.3 -17.1 -8.8 -22.2
11 MIDSX Midas Fund . -6.9 -8.0 -41.3 -51.4 -72.3
17 SCGDX Scudder Gold . -7.3 -3.8 -21.1 -16.6 -39.1
14 OPGSX Oppenheimer Gold A . -8.2 -6.7 -25.8 -18.8 -29.4
19 TGLDX Tocqueville Gold . -8.4 -6.5 -22.3 -5.9
10 STSLX Lexington Strat Silver -8.9 -9.7 -27.0 -26.2 -42.0
22 USAGX USAA Gold . -9.5 -10.1 -28.1 -22.9 -33.9
7 GOLDX Gabelli Gold . -9.5 -6.2 -27.0 -24.4 -39.1
20 USERX US Global Gold Shrs . -9.9 -10.6 -38.5 -41.1 -67.5
12 MIDIX Midas Investors . -9.9 -10.4 -34.8 -43.8 -66.9
8 FGLDX INVESCO Strat Gold . -10.1 -14.2 -27.3 -30.0 -58.1
21 UNWPX US Global World Gold . -10.6 -16.5 -44.6 -50.9 -64.0
4 EKWBX Evergreen Prec Mtls B. -10.9 -7.8 -27.0 -26.1 -42.4
9 LEXMX Lexington Goldfund . -11.0 -9.6 -32.0 -32.0 -40.7
5 FSAGX Fidelity Sel Gold . -11.0 -12.3 -29.7 -21.3 -43.9
24 INIVX Van Eck Intl Inv GoldA -11.1 -13.8 -34.4 -42.7 -53.5
16 RYPMX Rydex Prec Metals . -11.7 -11.6 143.1
2 BGEIX Amer Cent Global Gold. -12.5 -14.7 -38.2 -43.7 -53.4
18 SGGDX SoGen Gold . -12.9 -5.1 -30.4 -30.6 -43.6
13 MNTGX Monterey OCM Gold . -13.8 -14.4 -33.6 -37.7 -48.9
1 ASA ASA Ltd . -14.6 -6.5 -26.2 -24.6 -38.4
The month of October was another bitter disappointment for most funds which suffered through more gold equities falling out of bed. There was no significant rally or appearance of positive thought in this market, and so far, there is no evidence that November will be much better. Most funds hit a new 52 week low last week before moving up slightly.
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(10-31)
15 Permanent Portfolio . -29.3 17.94
25 Vanguard Gold/Pr Mtls. -68.1 6.68
17 Scudder Gold . -87.5 5.31
3 Amer Exp IDS Prc Mtl A -89.7 4.31
11 Midas Fund . -91.2 0.81
6 Franklin Gold A . -91.9 7.64
23 Van Eck Gold / Res A . -92.3 2.10
16 Rydex Prec Metals . -92.6 15.41
18 SoGen Gold . -93.1 4.44
12 Midas Investors . -94.5 1.72
14 Oppenheimer Gold A . -94.9 7.70
7 Gabelli Gold . -95.2 4.56
9 Lexington Goldfund . -96.3 2.27
4 Evergreen Prec Mtls B. -96.5 8.56
19 Tocqueville Gold . -96.5 10.08
22 USAA Gold . -96.6 4.37
20 US Global Gold Shrs . -97.5 2.36
24 Van Eck Intl Inv GoldA -98.0 3.93
8 INVESCO Strat Gold . -98.0 1.33
13 Monterey OCM Gold . -98.0 3.26
10 Lexington Strat Silver -98.2 2.14
5 Fidelity Sel Gold . -98.7 10.45
2 Amer Cent Global Gold. -98.9 3.49
21 US Global World Gold . -99.3 4.80
1 ASA Ltd . -100.0 14.31
As mentioned, most funds reached a new low within the last few days and have risen slightly from that point as if they expected to go up from here. From a historical standpoint, this is certainly a buying opportunity, but which might be exceeded by next month's opportunity.
The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of October 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. 277
6 Franklin Gold A . 189
1 ASA Ltd . 149
5 Fidelity Sel Gold . 113
2 Amer Cent Global Gold. 109
24 Van Eck Intl Inv GoldA 103
17 Scudder Gold . 78
22 USAA Gold . 67
14 Oppenheimer Gold A . 59
8 INVESCO Strat Gold . 58
15 Permanent Portfolio . 57
9 Lexington Goldfund . 42
11 Midas Fund . 39
21 US Global World Gold . 37
3 Amer Exp IDS Prc Mtl A 30
23 Van Eck Gold / Res A . 25
16 Rydex Prec Metals . 22
10 Lexington Strat Silver 16
20 US Global Gold Shrs . 15
7 Gabelli Gold . 12
4 Evergreen Prec Mtls B. 11
18 SoGen Gold . 10
19 Tocqueville Gold . 9
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
21 US Global World Gold . 1.63
11 Midas Fund . 1.60
2 Amer Cent Global Gold. 1.42
20 US Global Gold Shrs . 1.38
24 Van Eck Intl Inv GoldA 1.37
16 Rydex Prec Metals . 1.35
13 Monterey OCM Gold . 1.28
23 Van Eck Gold / Res A . 1.21
12 Midas Investors . 1.17
5 Fidelity Sel Gold . 1.02
8 INVESCO Strat Gold . 1.01
3 Amer Exp IDS Prc Mtl A 1.01
18 SoGen Gold . 1.00
9 Lexington Goldfund . 0.99
14 Oppenheimer Gold A . 0.98
22 USAA Gold . 0.92
1 ASA Ltd . 0.92
4 Evergreen Prec Mtls B. 0.90
7 Gabelli Gold . 0.88
19 Tocqueville Gold . 0.77
32 Lexington Strat Invest 0.77
28 Fidelity Sel Prec Mtls 0.74
17 Scudder Gold . 0.72
31 Pioneer Gold A . 0.71
6 Franklin Gold A . 0.71
10 Lexington Strat Silver 0.70
25 Vanguard Gold/Pr Mtls. 0.60
29 PIMCO Adv Prc Mtls C . 0.56
30 Morgan St DW Prc Mtls. 0.50
33 United Gold / Govt . 0.32
15 Permanent Portfolio . 0.14
*** 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
While many traders expected someone to come to the aid of the euro, and indirectly gold, nothing happened. Meanwhile, the dollar's strength was slowed only slightly during the last week of the month.
After recently reaching the 6% level, the long bond interest rate, an inverse reflection of the market value of the bonds, has held around 5.7% - 5.8% for several weeks and shows a strong continuing demand for U.S debt which in turn reflects demand for the dollar.
The fact that the trade deficit was approaching 4% of GDP is not a good sign since it has never exceeded that point in recent history, and it is certainly a level of dollar outflow which cannot be continued without a major economic impact soon. However, since both Bush and Gore promote free trade, the inevitability of larger trade deficits into 2001 looms large. At some point, the dollar will suffer from the extreme conditions which the market is not now correcting and the only solution will be precious metals.
So far, the threat to use more of the U.S. strategic oil reserve has kept the price of oil down near $33, although it acts like it wants to take off again if given the chance.
Referring to the similarities with the early 70's, while the big move in precious metals came later in 1979-80, there was a significant advance between 1972-1977 as the regular stock market cratered.
|