Posted on 06/30/2002 7:20:11 AM PDT by arete
SAN FRANCISCO (CBS.MW) -- Gold mutual funds compiled returns of as much as 32 percent in a second-quarter stock market that behaved like a very naughty child.
Against a U.S. equity landscape devoid of profits, precious metal funds dominated the top ranks of second-quarter performers. If short-selling mutual funds are set aside, the gold names made up nine of the top 10 equity funds for the quarter ending Friday. See fund results on CBS MarketWatch.
"Clearly, gold was the place to be, but I can't say I am entirely pleased," said Caesar Bryan, manager of the $98 million Gabelli Gold Fund (GOLDX: news, chart, profile), which rose 13 percent for the quarter, as of Thursday. "I think the gold price should be higher right now, so I am a little disappointed."
Gold mutual funds as a group rose about 14 percent for the three-month period, according to the latest preliminary numbers from mutual fund research group Lipper.
Gold is selling for $320 an ounce, some $18 above where it started the quarter in April. Yet gold fund managers, and gold investors, had high expectations for the rallying metal this spring. Many of the metal's backers, expecting Nasdaq havoc and accounting blow-ups to drive Main Street investors away from the stock market and into gold, had forecast a $325-an-ounce or greater price for the start of summer.
At one point, Middle East turmoil and talk of an all-out war between India and Pakistan drove spot gold's price within 70 cents of $330 an ounce, its highest since October 1999. The metal's June slide took a toll on gold mining stocks, one of the stock market's biggest gainers this year. See the CBS MarketWatch industry analyzer.
"Look at Harmony," Bryan said about Harmony Gold Mining (HGMCY: news, chart, profile), a South African producer. "It's come from $18 down to $14. It's been quite an adjustment."
The lucky few investors who owned gold mutual funds in the second quarter were skittish, taking their profits in June after some of the funds had produced gains of 80 percent and more since January.
Gold mutual funds are still relatively undiscovered, fund managers say. Combined, the assets of America's 41 gold mutual funds come to $4 billion, or about the size of a battered telecommunications company these days, like Qwest (Q: news, chart, profile) or Lucent Technologies (LU: news, chart, profile). Overall, equity mutual funds of all types amount to $3 trillion.
Ned Davis Research in Florida discovered earlier this month that the largest gold mutual fund, the $750 million Fidelity Select Gold Fund (FSAGX: news, chart, profile), accounted for less than 4 percent of the assets of all the Fidelity Select funds. The 13-year mean is 9.4 percent. "Growth funds are no longer greatly over-owned and gold funds are no longer greatly under-owned, but the reversion to the mean probably has further to go," Ned Davis said in his firm's report. The Fidelity gold fund is up 49 percent since Jan. 2.
Still, precious metal fund managers say Main Street investors are slowly warming up to gold. Fund managers report growing interest from individuals who have become disenchanted with the overall stock market, which has erased about $1.5 trillion of wealth since Jan. 2.
John Hathaway is a leading proponent of the view that gold's price, manipulated by hedged producers, bullion and central banks, is headed far higher in coming years. Hathaway manages the Tocqueville Gold Fund (TGLDX: news, chart, profile), which rose 14 percent in the June quarter and is up 66 percent since Jan. 2. "Our fund has grown quite nicely," Hathaway says from New York. "Assets are about $140 million and we have had daily inflows averaging around $1 million, mostly from places like Schwab. So I assume it's mainly retail."
Hathaway says larger investors are also showing interest in the rallying gold group, albeit slowly. "I have made presentations to three or four institutions who have shown interest, but so far have not made any commitments," Hathaway says. "I attribute their inaction partly to the natural sclerosis of the committee process, partly to the concern that they are too late and partly to the difficult ramifications of concluding that there is still significant upside -- the threat that would imply to everything else they own."
U.S. Global Investors Funds' World Gold Fund (UNWPX: news, chart, profile) topped the gold funds in the second quarter with a 32 percent gain. The $127 million fund is up 97 percent since January, reflecting the tremendous rally in gold-mining shares. Yet at one point in June, the fund was up 114 percent.
Eric Sprott of Sprott Asset Management in Canada manages some $750 million, much of it in gold assets. Unlike most U.S. mutual funds, Sprott is a buyer of actual bullion, not just gold-mining equities.
"Disappointment is the theme for most gold investors right now, but they have nothing to be ashamed of," Sprott says from Toronto. "Gold is still the best-performing asset class this year." In the United States, the net asset value of 41 gold mutual funds has gained almost 60 percent as a group since Jan. 2.
Growing disgust with traditional stocks, and a continued decline in the U.S. dollar, will spark another gold rally, Sprott says. The second-quarter stock market put in a 14 percent decline in the United States. "The endgame is to own gold because ultimately, it will outperform everything, including the gold-mining stocks," he says.
Adrian Day, a Maryland money manager who has spent more than two decades investing in gold mining companies, says gold mutual funds are often volatile and leave investors unhappy. "By their nature, mutual funds in volatile sectors such as gold -- or for that matter emerging markets -- tend to underperform the sector," Day says. "This is because investors tend to pile in at the top and withdraw money at the bottom. The result is that the poor manager has to buy at the top and sell at the bottom."
Day says one standout in the mutual fund field is First Eagle SoGen Gold Fund (SGGDX: news, chart, profile). The $62 million fund is up 83 percent since Jan. 2 and sports an annualized return over three years of 34 percent, best in the field. Next best over three years are Hathaway's Tocqueville fund and Bryan's Gabelli fund, each with 29 percent annualized returns.
"The First Eagle manager, Jean-Marie Eveillard, has done a superb job during the bad years," says Day. "He may not be the top-performing fund in a strong up market, but he'll participate and at modest risk."
The Puppet Masters have done a fairly good job of keeping the lid on the price of gold. Can they continue to do so?
Richard W.
Gold is sold on the open market. There is no "them" controlling the price. It's gold stocks that are over-inflated.
Will the mines choose to keep up with demand or slack off in their good fortune?
Will the mines be ordered to produce, then, in order to help people save some of their assets?
Will especially the cost of doing business: lawyers, accountants ... decline? ... so that prices of goods can make them competitive, reviving the marketplace?
If I were a bank right now, with all "due" respect to the Federal Reserve, I'd be buying gold.
Real estate became lucrative in the last Depression, for a while, as it offered some possibilities for investment, for people who had some money, and certainly in production/industry there was not much to offer.
But soon after that "blossom," it is the banks which end up owning the properties, as loans default.
Banks become big real estate holders in poor times.
Probably, the federal government will step in, to establish local zoning controls befitting the nationalizing socialists' agenda ... but step in the name of helping folks by assuming the mortgages.
People will like it; until eventually the economy improves and then the other foot lands: the enforcment of federal laws about what you can and cannot do with your property.
See: Sustaining Nothing, Losing Everything, Sierra Times, June 20, 2002, by Tom DeWeese (posted June 21, 2002 by brityank).
"What is Sustainable Development? ...On June 29, 1993, former President Bill Clinton issued Executive Order #12852 to create the President's Council on Sustainable Development. Sustainable Development calls for changing the very infrastructure of the nation away from private ownership and control of property to nothing short of a national zoning system.
Locally elected officials will no longer be the single driving force in making decisions for their communities. Rules will be made behind the scenes in non-elected "sustainability councils" armed with truckloads of federal regulations, guidelines and money.
According to Sustainable Development policies, air conditioning, convenience foods, single-family housing and cars are among the products that have already been determined to be unsustainable. Under such a system, the federal government, backed by an army of private, non-governmental organizations.
(NGOs), like the Sierra Club, Planned Parenthood, and the National Education Association will influence, if not dictate, policy in state governments and in local communities...
...The Community Character Act (S.975), and its counterpart in the House of Representatives (H.R.1433), is the legislation that will legalize enforcement of Sustainable Development in every community in the nation. The bill requires local governments to implement land-management plans using guidelines outlined in a federal document called the "Smart Growth Legislative Guidebook." This publication was developed with $2 million provided by the Clinton Administration to "guide" counties, cities and towns on how to "update their local zoning."
The Community Character Act offers grants to communities that will pay up to 90% of the costs for localities to "update" their zoning, but only if they do it the way the federal government dictates. The Community Character Act requires localities to "conserve historic, scenic, natural and cultural resources." These are euphemisms that mean more land grabs and fewer places where people can freely go about their daily lives. It means planned economies, restricted housing, and diminished use of cars. It means government control of property. The bill contains not a single mention of private-property rights protection..."
As a bank, right now, I would not want to be buying much real estate.
"What about the central banks who in the past were famous for their willingness to stuff any significant price rally with an “injection of liquidity?” Central bankers are only human. Once, they were only too happy to pile on to the downtrend in the dollar gold price by outright selling and lending of gold reserves in order to accumulate more paper assets. Now, they find themselves in the position where their principal reserve asset, the US dollar (representing 76% of world central bank reserves) is declining in value against the gold they were dumping as well as their holdings of other paper currencies. What they are loaded with is their worst asset. Since they are only human, it would be most surprising if they decided to sell what little (proportionately) remains of their best asset into a rising market. It would not be surprising if net sales of central bank gold have already seen their high water mark. The discussions between bullion dealers and central bankers on rollover of existing loans should become extremely interesting following a sharp rise in the gold price."
To read the full text of Hathaway's paper, go here:
O Brother Homestake, Where Art Thou?
Hathaway makes a good case, names names, and is and interesting read.
Richard W.
The players are big and their bets are huge. There is an awful lot riding on this. It has been reported many times that several of the hybred banking brokerages like JPM are holding large short positions in gold. A spike in the price could spell big trouble for them so you can expect them to use whatever means necessary to defend their positions. It is shaping up as "the mother of all" financial battles. I'd like to be a fly on the wall in some of those back rooms where the real deals are made and strategies planned.
Richard W.
And the Banks go Ka-chinggggg !!
All courtesy of scumbag Clinton, his minions and RINO enablers, and Agenda 21 boilerplate enhancing those federal regulations, guidelines and money.
Atlas Shrugged
Ayn Rand
The quote if from brityank's homepage. Thank you. It is so appropriate.
Richard W.
Yes -- not bad for a gal from Russia who, like me, thought the Constitution was for real. I may not agree with all of her precepts, but I could live with them better than those used by the current group of the perfumed princes of profligate partisanship ® and their sycophants.
Or, in the words of Thomas Gresham: Bad money drives out good.
Good post, arete.
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