Selecting Gold Mutual Funds

In this analysis I compare the different characteristics of several US gold funds.

Let's take a closer look at their data when compared to the performance of the XAU.

The unit price of Vanguard Gold is shown in the upper chart with its relative strength against the XAU in the lower picture.

We can see that the Vanguard has had three distinct phases since 1995. Firstly the bear trend to 1998 followed by the three year base formation leading to the bull trend since mid 2000.

But look at the relative strength movement during those phases in the top chart.

During the bear phase Vanguard the sideways line details that it performed at the same rate as the XAU, i.e. it fell at the same pace during the bear trend. When the sideways base pattern was developing Vanguard clearly outperformed the XAU. But the most important aspect is that during the recent bull phase it has once again only mirrored the performance of the XAU as detailed by the sideways move of the relative strength line.

If you are looking for a mutual fund that acts as an index fund and mirrors the average bull market movement then Vanguard is a candidate for your portfolio. But if you are looking for out performance then this mutual fund is not for you.

During the bear phase American Century Gold underperformed the XAU, but mirrored its performance during the base formation. Since the start of the bull trend it has outperformed the XAU. If you are bullish on gold then this mutual fund is likely to give superior performance but it will under perform in bear market phases. It appears to have a high market gearing.

Invesco Gold has a similar picture. During bear gold markets it underperforms, produces equal performance during base levels and out performs in bull phases. This chart to me looks ready for takeoff.

Franklin is similar to Vanguard. It follows the XAU in the bear trend, outguns it in the base and again has a flat performance relative to the index in the bull phase. This is a fund for the more conservative investor that wishes to take an indexed view of gold stock movement. It is not a fund for the more aggressive investor.

Fidelity fits into the more aggressive category. It has outperformed in both base and bull phases but underperforms in the bear market.

Judging by the above chart data the Van Eck fund appears to have one of the highest gearings to gold stocks. There was no base area on this chart just a sudden transition from very negative performance into powerful out performance. This is a fund for the very aggressive investor looking for maximum returns from a gold bull market. But do not lose sight of the under performance during negative market phases.

There was no base formation on the price chart of ING. But the relative strength picture reflected the base period. Since the 2000 bull started this fund has outperformed. This is another fund for the more aggressive portfolio.

Monterey is another gold fund that went from bear to bull without a major base pattern. During both the bear and base period it reflected the XAU performance as indicated by the sideways move. Since late 2000 it has aggressively out performed the XAU. But I am not convinced that this will be maintained into the next phase. I would wait for the relative strength to develop further before including this on my current buying list.

This Oppenheimer fund fits into the conservative category. It out performed the XAU during both the bear and base periods but has performed at the same pace during the bull phase. This is a banker for the conservative investor.

US Global Gold fund is another potentially aggressive picture. It underperformed during the bear market produced a flat performance in the base phase and has started to out perform during the bull period. But this out performance looks as though it has only just moving into gear.

US gold mutual funds appear to fall into two relative strength categories when measured against the XAU:

Aggressive

US Global Gold
Van Eck International Inv.
Fidelity Gold
Monterey Gold
ING Gold
Invesco Gold
American Century
AMEX Precious Metals
Scudder Gold

Conservative

Oppenheimer Gold
Franklin Gold
Vanguard Gold

If you believe that the gold market is only in its infancy, as I do, then you will focus on the more aggressive funds with the stronger relative strengths during the bull period.

If your preference is for funds that mirror the gold market movement and do not produce better or worse performances then you will become involved in the more conservative types.

Either way I believe that pension money should have a serious exposure to this gold market.

Dr. Clive Roffey produces Gold Action, one of the leading newsletter analyses of the gold market. This report is an extract from the latest Gold Action and is typical of the quality of data sent to subscribers.
Dr. Roffey is a top South African analyst and gold specialist and has his own TV show on analysis.
For trial copies of Gold Action contact:-
www.shareaction.co.za
chartist@mweb.co.za