EagleWing Research Newsletter on Gold Funds
November 1, 2001
GLOBAL WATCH
Comparing Funds | Comments
October saw the gold bullion and gold equities markets resuming their historical relationships of having poor results in an advancing stock market. The Dow Industrials, which had rallied substantially from September lows, closed the month at 9075, in a downward trend. However, for most of the month, the Dow partially recovered from its plunge in September, and gold gave up the gains it picked up after the World Trade Center attack. Part of the gold price decline can be attributed to the recovery of the U.S. dollar on the world markets after its temporary fall.
What could have been the beginning of a major decline in the dollar was cut short as confidence in the American financial system returned. Congress took quick action to pass laws which are intended to aid the economy. We appear to be winning the war in Afghanistan, however unclear the verdict. On the last day of the month, the U.S. Treasury decided that they would not be issuing future 30 year bonds since the government budget has a surplus, and the market price of existing bonds jumped up, dropping the interest rate to 4.88%. Since U.S. debt in long term bonds is one of the most convenient means of investing in the dollar worldwide, this prediction of a reduction in future supply is creating a short term increase in demand, negatively affecting the price of alternate safe haven investments such as gold.
International markets haven't been getting much press lately, but Argentina's troubles continued as a possible default remained in the future even after IMF assistance in August. How much a major financial debt default would affect the gold market is hard to predict, but it would probably make the dollar look stronger and therefore weaken gold prices in dollars. The IMF has not taken a position, and it looks like market forces will take control soon without further intervention. That is not good for Argentina or South America in general.
The downward trend in precious metals continued through October with only short daily rallies. Gold dropped from 292.4 to 279.5 and silver from 4.64 to 4.21. The XAU index slid from 57.7 to close at 54.5 after dipping as low as 51.4. Almost all gold equities declined. The euro peaked around .920, but slid back under .900 to end the month. Regaining strength, the dollar index closed just below 115. The price of oil remained below $22 even with OPEC threatening to cut production.
COMPARING FUNDS
Global Watch | Comments
Funds ranked by percentage change in net asset value for October.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
14 PRPFX Permanent Portfolio . 4.1 3.7 5.7 1.4 3.3
1 ASA ASA Ltd . 2.3 10.4 35.9 0.9 3.1
18 TGLDX Tocqueville Gold . 1.5 9.3 30.0 1.0 22.3
23 VGPMX Vanguard Gold/Pr Mtls. -0.1 8.5 24.4 5.6 18.5
8 GOLDX Gabelli Gold . -0.8 11.0 37.7 0.5 4.1
15 LEXMX Pilgrim Prec Metals A. -1.3 8.5 34.4 -8.7 -8.7
20 UNWPX US Global World Gold . -1.3 5.8 9.8 -39.1 -46.1
19 USERX US Global Gold Shrs . -1.4 5.3 16.9 -28.1 -31.2
4 EKWBX Evergreen Prec Mtls B. -1.6 8.4 40.8 2.8 4.1
2 BGEIX Amer Cent Global Gold. -1.7 11.2 48.4 -8.3 -16.4
13 OPGSX Oppenheimer Gold A . -1.7 3.0 25.1 -7.2 1.6
6 SGGDX First Eagle SGen Gold. -1.8 11.2 39.0 -3.3 -3.6
5 FSAGX Fidelity Select Gold . -1.9 5.3 32.4 -6.9 4.3
21 USAGX USAA Gold . -2.0 9.1 42.3 2.3 9.7
9 FGLDX INVESCO Strat Gold . -2.3 7.0 26.3 -8.2 -11.6
12 MNTGX Monterey OCM Gold . -2.4 9.0 49.1 -1.0 -7.1
16 RYPMX Rydex Prec Metals . -2.9 7.0 35.7
11 MIDIX Midas Investors . -2.9 1.5 16.3 -24.2 -34.6
7 FKRCX Franklin Gold A . -3.0 1.2 17.7 -2.5 7.3
22 INIVX Van Eck Intl Inv GoldA -3.8 8.0 30.5 -14.4 -25.2
10 MIDSX Midas Fund . -4.3 1.1 8.6 -36.2 -46.0
17 SCGDX Scudder Gold . -4.7 6.1 28.6 1.5 7.2
3 INPMX AXP Precious Metals A. -5.2 -1.4 18.6 -7.9 -9.6
The top fund for the month was Permanent Portfolio (PRPFX), but probably because of its holdings in relatively safe U.S. Treasury bonds, which climbed in value as interest rates fell. This, of course, reflects a good decision to have them in a portfolio. Most funds hold a small amount of T-bills for cash liquidity, but usually not much. The Permanent Portfolio holds bullion and bonds instead of investing in gold mining equities and therefore is much less volatile. It ended the month at its annual high, climbing.
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)
14 Permanent Portfolio . 100.0 18.96
6 First Eagle SGen Gold. 86.1 6.17
2 Amer Cent Global Gold. 74.6 5.18
12 Monterey OCM Gold . 71.3 4.86
21 USAA Gold . 64.2 6.22
22 Van Eck Intl Inv GoldA 62.7 5.13
15 Pilgrim Prec Metals A. 50.0 3.05
18 Tocqueville Gold . 50.0 13.10
4 Evergreen Prec Mtls B. 48.0 12.05
8 Gabelli Gold . 47.3 6.28
5 Fidelity Select Gold . 46.1 13.84
9 INVESCO Strat Gold . 44.8 1.68
23 Vanguard Gold/Pr Mtls. 43.8 8.31
17 Scudder Gold . 28.6 6.83
16 Rydex Prec Metals . 26.8 20.91
13 Oppenheimer Gold A . 14.3 9.63
1 ASA Ltd . 10.9 18.96
11 Midas Investors . 1.6 2.00
19 US Global Gold Shrs . 0.0 2.76
10 Midas Fund . -3.7 0.88
7 Franklin Gold A . -11.5 8.99
3 AXP Precious Metals A. -14.3 5.11
20 US Global World Gold . -19.5 5.27
Even after a poor month, most funds are above their 52 week average. This number is probably the best indication of a fund's ability to recover from a weak market over the past year.
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
23 Vanguard Gold/Pr Mtls. 323
5 Fidelity Select Gold . 212
1 ASA Ltd . 182
2 Amer Cent Global Gold. 178
7 Franklin Gold A . 155
22 Van Eck Intl Inv GoldA 103
17 Scudder Gold . 98
21 USAA Gold . 77
9 INVESCO Strat Gold . 63
13 Oppenheimer Gold A . 56
14 Permanent Portfolio . 55
15 Pilgrim Prec Metals A. 49
16 Rydex Prec Metals . 44
20 US Global World Gold . 42
10 Midas Fund . 32
3 AXP Precious Metals A. 29
19 US Global Gold Shrs . 22
8 Gabelli Gold . 13
12 Monterey OCM Gold . 12
18 Tocqueville Gold . 12
6 First Eagle SGen Gold. 10
4 Evergreen Prec Mtls B. 6
11 Midas Investors . 3
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
From beginning to end, October saw the Dow recover substantially and gold give up most of its September gains. The price of gold slid to a price still above pre attack prices, reaching as low as 275, but the trend may have turned positive the last week of the month, closing at 279.5. Silver's action, however, looked like it was not only giving up the total rally advance, but about to plunge to a new multi-year low.
Conditions haven't changed much in the gold markets other than the confidence in the dollar having an effect, but the overall economic situation is not showing any signs of recovery. Every economic indication or report which comes out in the news is not good news. Earnings are down, spending is down, investments are down, employment is down. This is not historically good for gold.
From an historical viewpoint, however, the increase in the money supply in the last year, and the increase in credit production, matched with the recent effort of the U.S. government to boost the economy with spending, usually produces future inflation after a recessionary period. In the very long run, gold has a definite future in terms of the dollar.
The recent decision to terminate future long term U.S. bonds is a decision I feel will be reversed. We won't be having a surplus long when there are no long term gains to tax. Someone up there has very short vision. That means that the runup in bond values is temporary and the bond interest rates will not stay low for long.
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