EagleWing Research Newsletter on Gold Funds
December 1, 2001
GLOBAL WATCH
Comparing Funds | Comments
November saw a few unique occurrences, such as one of the largest U.S. corporation failures ever, and interest rates lowered by the Federal Reserve to a level not seen for thirty years. Internationally, the worldwide bond and debt situations are affecting several currencies, placing them in a possibility of devaluation. The largest is Argentina, which was still negotiating with the IMF for more aid. Commercial banks have already drawn the line in the sand, and without a new IMF transfusion, Argentina will have to default on debts or devalue the currency, or both.
In Japan, with unemployment reaching over 5%, a post-war high,a similar devaluation of the yen is being considered as a means of getting the Japanese economy off dead center and back in a position to create some real economic growth. However, as a result, China would not appreciate Japan getting a trade advantage with a weaker currency and would probably consider devaluing its currency also. More currency devaluations would eventually result in the U.S. dollar being the only currency not devalued, and by default, the strongest.
In the U.S., it was calculated that the recession officially started last spring, and GDP figures showed an actual decrease of 1.1% for the third quarter. Meanwhile, stock markets worldwide continued to climb, with the Dow Industrials closing the month at 9851, and resulting in an advance of 20% from its bottom in September. Some stock exchanges experienced even more growth in the past two months. Worldwide markets climbed in the face of the global recession and national job cuts, primarily due to central banks making large increases in national money supplies to protect individual economies, including the U.S.
Newmont Mining (NEM) offered to buy Canada's Franco-Nevada Mining Corp. Ltd. (FN.TO) in addition to Australia's Normandy Mining Ltd. The combined deal would be worth over $4 billion and make NEM the largest gold miner in the world. At the last minute, Anglo Gold of South Africa raised its offer for Normandy so the case hasn't been settled yet.
Enron, the seventh largest corporation in the U.S., looked like it would have to claim bankruptcy soon as the market said it was only a penny stock. It traded near $84 12 months ago. Massive financial losses ranging from $13 to $26 billion will certainly affect the debt holders, such as Chase Manhattan Bank and Citibank. Both may lose over $1 billion.
The dollar remained strong most of the month until the last day with the announcement of the GDP decrease. The euro closed at .895. Gold fell from 279.5 to 273.9 and silver from 4.21 to 4.12 after setting a new eight year low at 4.02. The XAU index slipped from 54.5 to 52.5.
COMPARING FUNDS
Global Watch | Comments
The following table shows funds ranked by percentage change in net asset value (nav) during November.
fn Fund 1 mo 3 mo 12 mo 2 yr 3 yr
1 ASA ASA Ltd . 6.4 14.7 42.0 12.5 17.8
23 VGPMX Vanguard Gold/Pr Mtls. 2.5 6.8 20.3 6.4 24.1
5 FSAGX Fidelity Select Gold . 2.3 2.0 30.1 -0.8 9.0
13 OPGSX Oppenheimer Gold A . 2.3 -0.2 21.6 -3.8 3.9
7 FKRCX Franklin Gold A . 1.2 -3.7 11.8 -2.9 10.7
10 MIDSX Midas Fund . 1.1 -1.1 15.6 -31.0 -43.3
21 USAGX USAA Gold . 0.8 3.1 35.4 7.5 13.0
8 GOLDX Gabelli Gold . -0.5 4.3 29.7 3.5 5.4
18 TGLDX Tocqueville Gold . -0.5 4.4 23.0 4.7 23.5
20 UNWPX US Global World Gold . -0.6 3.8 10.3 -36.7 -42.5
19 USERX US Global Gold Shrs . -0.7 1.9 14.2 -25.5 -27.1
14 PRPFX Permanent Portfolio . -0.7 1.6 4.6 1.5 1.5
15 LEXMX Pilgrim Prec Metals A. -1.0 2.4 26.9 -6.2 -7.4
4 EKWBX Evergreen Prec Mtls B. -1.2 1.4 30.2 4.5 4.9
3 INPMX AXP Precious Metals A. -1.2 -5.6 8.1 -8.8 -8.7
17 SCGDX Scudder Gold . -1.5 -1.8 20.8 1.7 7.2
22 INIVX Van Eck Intl Inv GoldA -1.6 0.8 21.1 -12.6 -23.7
9 FGLDX INVESCO Strat Gold . -1.8 0.0 25.0 -5.2 -8.8
2 BGEIX Amer Cent Global Gold. -2.5 2.4 37.6 -6.1 -14.4
16 RYPMX Rydex Prec Metals . -2.5 -2.0 22.9
12 MNTGX Monterey OCM Gold . -3.1 -0.2 33.8 -0.8 -5.4
11 MIDIX Midas Investors . -3.5 -5.4 6.6 -25.2 -34.6
6 SGGDX First Eagle SGen Gold. -3.6 1.9 32.2 -4.0 -1.7
ASA Limited (NYSE-ASA) regained the top position for November, and is one of the top funds for the year. Although technically not a mutual fund, it's close enough for our comparisons. The main difference is that the market price of ASA is the result of an auction (bid/ask) and not a net asset value calculation based on portfolio assets. Therefore, the price quoted may be more or less than the actual value of ASA's portfolio of equities.
Overall, November saw a gradual losing trend for most gold funds, but all still retain a very positive gain for the last 12 months. Statistics are also beginning to show fund gains over the past two and three year periods. Unless there is a major financial disruption in the near future which would cause gold to drop significantly, we can probably say that we saw the bottom of the gold fund sector last November.
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(11-30)
21 USAA Gold . 59.8 6.27
6 First Eagle SGen Gold. 59.6 5.95
2 Amer Cent Global Gold. 54.7 5.05
23 Vanguard Gold/Pr Mtls. 53.8 8.52
14 Permanent Portfolio . 50.0 18.82
5 Fidelity Select Gold . 48.4 14.16
12 Monterey OCM Gold . 47.0 4.71
22 Van Eck Intl Inv GoldA 43.7 5.05
18 Tocqueville Gold . 41.1 13.03
8 Gabelli Gold . 37.4 6.25
15 Pilgrim Prec Metals A. 33.3 3.02
4 Evergreen Prec Mtls B. 30.7 11.91
1 ASA Ltd . 29.4 19.83
9 INVESCO Strat Gold . 22.4 1.65
13 Oppenheimer Gold A . 3.6 9.85
17 Scudder Gold . 2.8 6.73
20 US Global World Gold . -6.8 5.24
16 Rydex Prec Metals . -8.7 20.38
19 US Global Gold Shrs . -11.4 2.74
10 Midas Fund . -18.2 0.89
7 Franklin Gold A . -28.3 9.10
11 Midas Investors . -28.8 1.93
3 AXP Precious Metals A. -43.3 5.05
Although there are a few weak funds, most are holding firm well above their 52 week average.
The following chart shows the approximate size of funds as measured in total assets under management in $millions. (As of November 30) 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. 331
5 Fidelity Select Gold . 217
1 ASA Ltd . 191
2 Amer Cent Global Gold. 174
7 Franklin Gold A . 157
22 Van Eck Intl Inv GoldA 102
17 Scudder Gold . 96
21 USAA Gold . 78
9 INVESCO Strat Gold . 62
13 Oppenheimer Gold A . 58
14 Permanent Portfolio . 55
15 Pilgrim Prec Metals A. 48
16 Rydex Prec Metals . 43
20 US Global World Gold . 41
10 Midas Fund . 33
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
1 ASA Ltd . 1.46
12 Monterey OCM Gold . 1.13
2 Amer Cent Global Gold. 1.10
8 Gabelli Gold . 1.07
4 Evergreen Prec Mtls B. 1.05
16 Rydex Prec Metals . 1.04
6 First Eagle SGen Gold. 1.01
3 AXP Precious Metals A. 0.99
21 USAA Gold . 0.98
23 Vanguard Gold/Pr Mtls. 0.95
15 Pilgrim Prec Metals A. 0.92
5 Fidelity Select Gold . 0.92
17 Scudder Gold . 0.92
7 Franklin Gold A . 0.91
13 Oppenheimer Gold A . 0.89
19 US Global Gold Shrs . 0.89
18 Tocqueville Gold . 0.87
9 INVESCO Strat Gold . 0.86
11 Midas Investors . 0.82
22 Van Eck Intl Inv GoldA 0.79
20 US Global World Gold . 0.69
10 Midas Fund . 0.65
14 Permanent Portfolio . 0.24
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 recent downward trend for all gold funds has tended to reduce the relative size of beta since no fund has approached its 52 week high since August. Most new highs were set in late May.
*** 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.
INVESTING COMMENTS
Global Watch | Comparing Funds
The euro will be introducing coins in Europe for commercial transactions in December and we will see how much the new currency is truly accepted by the consuming public. This could have an indirect affect on gold.
The result of an Argentina default or devaluation will certainly cause investors to reconsider their support of nonsupporting economies, sending signals and affecting other currency situations.
In the past, large bankruptcies and debt losses by others have often disrupted both debt and equity markets enough to cast doubt on financial arrangements, such as currency values, and could have a direct affect on the price of gold.
If many other U.S. trading partners devalue their currencies similar to Japan by creating large amounts of new money in an effort to jump start their economies, our exporters will be at a disadvantage with the strong dollar. Therefore, a strong dollar would be difficult to justify if the economy goes further into the tank and stays there. Since the Federal Reserve and U.S. Treasury are increasing the current money supply in excess of an annual 10% rate, I think the dollar will also be devalued by the market. That will be noticeable when the long bond falls, pushing the interest rate up. A decreasing dollar will signal the beginning of the gold bull market.
Newmont Mining's offer to purchase Normandy and Franco-Nevada may be a sign that the bottom is approaching. The confirmation of value placed on some of the little survivors being made by the big companies who should know is being done before their market value goes up. Therefore, it is bullish for the gold equities market.
The fact that there is more interest in ASA over the past two months is a bullish sign for the gold market, and could be a good indication of the major trend changing to the upside.
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