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The Best Gold Fund To Own

Summary Gold miners have unique situations due to differing geographic, regulatory and currency risk, as well as different ore quality. Gold mining index ETFs are good for trading and short-term exposure. Long-term investors who plan on holding longer than three months should consider TGLDX instead. Investors have flocked to index funds and ETFs due to their low cost, tax efficiency and transparency. The general rise of indexing has helped ETFs grow rapidly, taking market share from mutual funds, particularly actively managed funds. However, there are clear-cut cases of active managers outperforming their indexed competition. One example is the gold mining sector. Gold Funds Since the inception of the Market Vectors Gold Miners ETF (NYSEARCA: GDX ) in 2006, the fund has seen an incredible inflow of funds, to $7.1 billion as of January 23. The small cap edition, Market Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ ) has amassed $2 billion in assets since its inception in late 2009. The actively managed the Tocqueville Gold Fund No Load (MUTF: TGLDX ), which was created back in 1998, has attracted only $1.3 billion in assets. For short-term investors, the ETFs make sense due to TGLDX’s short-term trading fee of 2 percent. The high volume in GDX and GDXJ indicates traders are using the ETFs to speculate on the volatile sector, even after a long bear market in mining shares. However, long-term investors may also be holding shares. Those investors are placing their confidence in the market cap-weighted indexing strategy, but the gold mining industry is one where active management can pay off. The saying “A mine is a hole in the ground with a liar at the top” is attributed to Mark Twain, and it gets to the heart of the difficulty in evaluating mining companies. The track record of TGLDX shows that this assumption is correct. The chart below is a price ratio of TGLDX to GDX – a rising line shows outperformance by TGLDX. (click to enlarge) Since its inception in 2006, TGLDX has generally outperformed GDX. Aside from an 18-month period from summer 2007 to 2009, TGLDX hasn’t spent much time trailing GDX. The total return since May 16, 2006, the inception of GDX, shows that TGLDX has built up a considerable lead: a loss of 4.46 percent versus a decline of 38.13 percent in GDX. (click to enlarge) TGLDX does have an advantage over GDX in that manager John Hathaway can choose to hold more small cap miners than the market cap-weighted index. However, TGLDX also beat GDXJ since the inception of that ETF, a loss of 33.12 percent versus a drop of 68.07 percent for GDXJ. This indicates stock selection is playing a role in TGLDX’s outperformance. (click to enlarge) The strong performance in TGLDX has more than made up for its higher expense ratio of 1.36 percent, versus 0.53 percent for GDX and 0.58 percent for GDXJ. TGLDX Recognized by Lipper as the Best Fund in the Precious Metals category during the last five years, the Tocqueville Gold Fund is co-managed by John Hathaway and Doug Groh. Originally created in 1998 by Mr. Hathaway, the fund was initially designed to take advantage of the negative psychology that surrounded the gold market at that time. The no-load fund is based on a contrarian value investment philosophy, and seeks long-term capital appreciation. The minimum investment is $1000 ($250 IRA). In addition to the 1.36 percent expense ratio, there is a 2 percent fee on shares held less than 90 days. This is not a fund for traders, but for long-term investors who want exposure to gold mining shares. Mr. Hathaway, senior managing director at Tocqueville Asset Management, is the portfolio manager for the Tocqueville Gold Fund. In 1986, he founded Hudson Capital Advisors and managed the firm until 1997, when he joined Tocqueville. Mr. Hathaway earned his B.A. From Harvard University, M.B.A. from the University of Virginia and began his career in 1970 employed as an equity analyst with Spencer Trask & Co. As portfolio manager for the Tocqueville Gold Fund, he searches for companies in the gold sector that have excellent management teams and assets that provide the most value independent of the price of gold. Researchers for the fund follow the entire gold resource and mining industry. Investing in the gold sector from 1998 to 2011 produced record returns. Since then, the sector has been out of favor and has taken quite a hit. Spot gold traded at a high above $1,900 an ounce in 2011, and finally found a bottom below $1,200 an ounce in 2014. Mr. Hathaway believes that the slump may be close to reversing for gold investors, and holds that a bottom in gold is being formed. Mr. Hathaway believes that the price of spot gold has been discounted to a point where most of the negative headlines are priced in. At some point, rates will need to be taken higher, and this could prove to be very disruptive to the markets. Back in November, he saw gold rallying along with the U.S. dollar as a sign of alternative reserve currency risk . The recent performance of gold in euros shows he was on target with this view. (click to enlarge) Finding Winners Aside from a 12 percent position in physical gold, the $1.3 billion fund is mostly invested in equities related to precious metal mining. While this sector can be challenging, Mr. Hathaway has a knack for discovering hidden gems involved with exploration and building up production. Gold mining is a capital-intensive business that takes many years to develop and will see many different issues over those years. An obvious change is in the price of gold, but companies in the gold sector must also deal with change in governments, currency devaluations, central bank policy and both local and global economic conditions. The fund takes a diversified approach and invests in all types of business models, ranging from royalty companies to businesses involved only in exploration. Speaking about the fund’s strategy, Hathaway said: “Our strategy for the Fund has been to find companies that are adding value even in a low gold price environment. As a result, we tend to focus on smaller companies and steer clear of larger companies that have either experienced operational challenges or have lower levels of reserves in their portfolio. We believe having smaller companies in the portfolio has been an important contributor to the Fund’s outperformance relative to its benchmark and the Morningstar Equity Precious Metals Funds Category over time.” The top five holdings behind the 12 percent holding in physical gold are Royal Gold (NASDAQ: RGLD ), Franco-Nevada (NYSE: FNV ), Eldorado Gold (NYSE: EGO ), Goldcorp (NYSE: GG ) and Agnico Eagle Mines (NYSE: AEM ). Allocations in the top ten range from 6.62 percent in Royal Gold to 3.19 percent in Yamana Gold (NYSE: AUY ). Recent underperformance by Eldorado and Yamana have dinged the fund in 2015. The fund is up 11.06 percent through January 23, versus a 15.42 percent return for GDX. Royalty companies play a major role in the fund, with about 12 percent of its assets invested in two of the major players: Royal Gold and Franco-Nevada. The business model that royalty companies are based on has become attractive to gold investors. Gold royalty companies help finance mining construction and receive royalty payments in return. By investing this way, they avoid some of the hazards and costs of exploration or operations. The stream of payments that gold royalty companies receive are based on future sales, and are not as sensitive to spot gold price fluctuations. Mr. Hathaway recognized the inherent value of these type of investments early on and included them in TGLDX. Gold’s price decline in the last 3 years has been devastating for many gold mining companies. While some are specialized in exploration, others have expertise in development. Many in the niche are having to rethink their business models and capital spending plans in order to become profitable. This has led to an increase of mergers and acquisitions in the industry, and presents the fund with the ability to invest in companies that may be targeted acquisitions. In fact, the fund performed well in 2014, beating the category by more than 6 percent, by holding a large position in Osisko Mining Corp. ( OTC:OKSKF ). It became a top-weighted position in the fund until going through its merger . Another possible acquisition target that has been placed in the fund’s portfolio is based in Ontario, Canada. Detour Gold Corp. ( OTCPK:DRGDF ) is expected to become the largest operating gold mine in Canada, with a possible lifespan of 21 years. With Osisko Mining being acquired, investors began looking for the next target for a merger. Mr. Hathaway believes there will be more opportunities such as these, and continues to scour the landscape for possibilities. With around 17 years at the helm of the Tocqueville Gold Fund, Mr. Hathaway has his pulse on the gold sector and possesses a management style that’s been beneficial to its investors. TGLDX has beaten the returns of popular gold ETFs, and investors looking to establish a long-term position in the sector should look to the fund. Outlook for Gold Mining Shares In many foreign currencies, gold is experiencing a strong rally, trading at a 12-18 month high, depending on the currency. Gold is near its all-time high in yen, and at all-time highs in currencies that crumbled last year, such as the Russian ruble. If gold remains an alternative to the U.S. dollar as a reserve asset/safe haven currency, the price could remain elevated even amid a U.S. dollar bull market , since such a bull market will likely be accompanied by a series of financial or currency crises in emerging markets due to the run-up in dollar-denominated debt over the past several years. Falling energy prices, along with other costs for mines located abroad could help miners increase non-dollar profits. For example, in January alone, gold went from $1400 to $1600 in Canadian dollars. A 20 percent combination move in gold and Canadian dollar depreciation would lift the metal to a new all-time high in Canadian dollars. A pullback in gold and rebound in foreign currencies is long overdue, though, at least in the short run. Miners used the recent jump in prices to raise cash as well. The industry diluted shareholders to the tune of more than $800 million in January 2015 alone. The share issuance sent shares of the affected miners lower, and until business conditions for the sector improve markedly, further share issuance is possible. The best-case scenario for mining shares amid a U.S. dollar bull market (leaving aside a new bull market in the U.S. dollar price of gold) is if foreign demand for hard money keeps the price of gold level or even increases it slightly in U.S. dollars. The price in foreign currency could rise substantially as foreign currencies devalue versus the dollar and gold, and since mining shares are leveraged to the price of gold, their earnings could rise significantly. If, instead, the gold price falls, high-cost miners will struggle to remain profitable and the bear market for mining shares will continue.

Dogs Of The Dow Part II And The Return Of The Goldbugs?

Summary SunAmerica Focused Dividend has turned it around in 2015, are the Dogs of the Dow back? Can active managers catch up after a disastrous 2014? Can the Goldbugs find a way to shine in 2015? It has only been three weeks since our posting on SunAmerica Focused Dividend (MUTF: FDSAX ) and while the ‘Dogs of the Dow’ may have continued to slumber since then, something is definitely working for the fund. In the 7th percentile on a YTD basis, the fund has delivered a solid 2.79% return since our posting compared to 1.55% for the S&P 500 and .82% for the Russell 1000 Value iShares. While we always like to see ourselves proven right (who doesn’t?), the reasons why FDSAX has outperformed so far in 2015 could spell more trouble for active management in the year to come. The secret to FDSAX’s strong performance in 2015 really isn’t that hard to figure out; just head over to Morningstar.com and check it out. What’s in the secret sauce? Well it’s not the Dogs of the Dow although only 4 of the Dogs it holds are underperforming the Dow Jones Industrial Average so far this year. The secret to their success; video games and cigarettes or put another way a deeply discounted retailer (Gamestop (NYSE: GME )) and the 4 largest remaining cigarettes manufactures in the world, the foundations of the consumer staples category. What’s made FDSAX so successful is that incredible difference in performance between the different sectors of the market with a spread of nearly 800 bps between utilities (the Utilities Select Sector SPDR ETF ( XLU) – up 4.07%) and financials (the Financial Select Sector SPDR ETF ( XLF) – down 3.88%) in 2015. For the same period of 16 trade days at the start of 2014, the spread between healthcare and consumer cyclicals was only 594 bps. If the trend continues, 2015 is shaping up to be another year that separates the true active managers from the closer indexers. Let’s start by taking a look at the broader market to see what we can make of the situation. Starting with a daily chart, the S&P 500 was pulled back into the late 2014 ascending wedge on the promise of the new ECB QE program along with a spate of negative economic reports here at home that lite the hope that the Fed’s anticipated rate hike program is on hold. (click to enlarge) While Thursday’s price action was a welcome change, all things considered the weekly action was unimpressive. The volume heading into Thursday was steadily diminishing and Friday’s close just off the lows failed to confirm the move higher. Today’s election of a new leftist government in Greece probably won’t help the open on Monday. As of press time (10:30), the VIX futures had jumped although we backing off the highs. On a weekly basis, you can see the S&P bounced off the first potential stopping out point, but we’ll need to see follow through this week to confirm whether this is just a bounce off one day’s positive news. The fact that the news that lifted the market originated overseas rather than here doesn’t strike me as particularly positive. (click to enlarge) What’s more worrying for trying to separate the closet cases from the true active managers is that the internal make-up of the market doesn’t show any signs of improving although the recent trend towards defensive sectors might be running out of steam. First let’s start with this chart showing the percentage of stocks above their 200 day moving average. You can see that the percentage is way off, even after Thursday’s big one day spike but you have to consider what did well versus what lagged last week. (click to enlarge) Sector wise, Healthcare and Financials make up nearly 30% of the S&P 500 and both lagged noticeably; the financials have been hit hard on weak earnings and healthcare stocks are showing signs that they’re running on fumes after so many years of strong performance. That strong performance is probably the biggest detractor to stronger returns going forward as long term investors have serious gains to protect. Consumer defensive’s and healthcare stocks also underperformed for the week although they make up a much smaller portion of the index at a little more than 12% while high flying REIT’s make up only around 2%. (click to enlarge) (click to enlarge) (click to enlarge) (click to enlarge) For the S&P 500 to really breadth stabilize and give the market a fighting chance to making serious gains, the last need to become the first. Consumer cyclicals and industrials make up over 22% of the S&P 500 and have had…well mixed performance following tough 2014’s. And the best that can be said about energy stocks is that they haven’t gotten lot worse. This is why market prognosticators always say defensive-led rallies are doomed to failure in the long run. They make up such a relatively small part of the market that as long as they’re pulling the market higher, the advance will be tepid and unstable. Goldbugs Take Heart: What about the Yinzer Analyst’s favorite wager of 2015, European equities? Well you can see that the unhedged iShares MSCI EMU ETF ( EZU) managed a decent advance for the week although it underperformed SPY, up 1.36% to 1.66%. On a daily chart basis, the advance off a retesting of the downtrend line was confirmed by a shift in momentum and the sharp rise in the CMF (20) score although the failure to break above the 50 day moving average was disheartening. (click to enlarge) On a weekly basis, the sharp uptick in volume was offset by a middling CMF score for the week leading to a decline in the CMF 20 and failing to confirm the breakout. With Sunday’s election in Greece, the most likely direction will be lower to retest the downtrend line. (click to enlarge) Who has enjoyed a seriously strong and undeniably positive start to 2015 are the gold miners. After so many bad years, could the global uncertainty over deflation and equity weakness here at home be ready to push the miners back towards their 2014 highs? Take a look at the daily chart below, you can see the Market Vectors Gold Miners ETF ( GDX) managed to push back into its 2014 trading range before getting stuck at the 200 day moving average, but the real handicap for the week wasn’t profit taking (we hope) or covering old losses, but a positive week for the S&P 500. Despite the best efforts of the Permanent Portfolio Fund (MUTF: PRPFX ) which is killing it in 2015, gold has lost its luster for most investors and the miners especially aren’t playing a big role in their portfolios anytime soon. But hey, room to grow right? (click to enlarge) Longer term, the miners are still stuck in the falling wedge pattern that has been guiding its destiny ever downwards since 2012. This week GDX ran smack into the upper boundary and managed to push through it before running out of steam and closing below the trend line. For those gold bugs out there, take heart. Volume was lower on the week and didn’t damage the uptrend line while the MACD seems to be in the early stages of rolling over to turn positive. Even if the move turns out to be another false rally, take heart goldbugs, the pattern continues to narrow indicating a breakout could be in the cards later in 2015. (click to enlarge) That’s it for the Yinzer Analyst tonight; he’s going to need his rack time before getting up to clear some snow. But tomorrow is a new day and another change to make some money, make sure you’re ready for whichever way the market bends.

Any Hope For A Gold And Oil ETF Rebound In 2015?

Gold and oil were the two most-talked-about commodities last year thanks to their awful performances. These two widely-followed commodities witnessed dire trading in 2014 with the latter being thrashed heavily by the strength of the greenback, demand-supply imbalances, and cooling geo-political tension in the second half of the year. While muted global inflation, reduced demand from key consuming nations like China and India restricted the yellow metal’s northward ride, the return of worries in the Euro zone, and poor data points from Japan and China have made oil more diluted. As a result, oil prices plummeted more than 50% in 2014 and gold registered the first consecutive annual decline last year since 2000 . Some are also worried that the slump could continue as the Fed is now on its way to hike the key rate this year. The Fed’s step strengthened the dollar and in turn marred commodity investing. Great Start to New Year for Gold Having lost more than 8% in the last six months, SPDR Gold Trust ETF (NYSEARCA: GLD ) bounced back to start the New Year gaining about 2% in the last two trading sessions as of (January 5, 2014). So, did the biggest gold mining fund, Market Vectors Gold Miners ETF (NYSEARCA: GDX ) , which has added about 5.8% during the same phase. Gold miners – which often trade as leveraged plays on gold – delivered two successive years of negative performances losing about 50% in 2013 and 16% in 2014. A sagging stock market and worries over Greece political crisis indicating the nation’s likely way out of the Euro area bolstered the safe-haven appeal of gold to start this year. As a result, gold bullion crossed the $1,200/ounce mark after a few months. In such a situation, investors might want to know the upcoming course of gold related ETFs. We do not expect the latest uptrend to last long. Most of the macroeconomic indicators that went against gold prices last year like the Fed policy, strong U.S. dollar and deflationary spell, will nothing but intensify this year. GLD is trading a little below its 200-day simple moving average but higher than 50 and 9-day simple moving averages which signify long-term bearishness for the ETF. The biggest fund in the space, GLD, is yet to enter the oversold territory as depicted from the above chart. The ETF is trading at a Relative Strength Index (RSI) value of 53.48 indicating there is room for further erosion in the price once the risk-off sentiments drop out of sight. The trend was similar for GDX too with current price trading below long-term averages and above the short-and-medium term averages. Its RSI value stands at 56.54. In a nutshell, miners will likely follow the underlying metal’s direction, obviously with higher magnitude, this year. Overall, the gold mining space will likely see a mixed 2015 and will be busy paring down losses incurred last year. Investors interested to bet on gold should follow the space closely as it is expected to be on a roller coaster ride this year. No New Year Party for Oil Unlike gold, there was no celebration for oil this New Year. WTI crude prices are now below $50, marking a massive slide from their level a year ago. Needless to say, this was a new multi-year low. Persistent supply glut, no production cut by OPEC as well as the U.S. will keep the space under pressure. United States Oil Fund ( USO ) is trading a little below long, medium and short-term moving averages which signifies utter bearishness for the product. In fact, it seems as though oil does not have any driver which can revive it in the near term. However, the product is presently trading at a RSI value of 22.53 indicating that it slipped into oversold territory and might change its course soon after hitting a bottom. Per barrons.com , Citigroup’s commodity group cautioned about a frustrating 2015 for oil and slashed its oil-price forecast for this year and the next to even lower than its most bearish prior estimates. Citi cuts price expectation for WTI crude from $72/barrel to $55 in 2015 while Brent oil price expectation has been reduced to $63 a barrel from $80 a barrel. Bottom Line In short, 2015 should not be great for both commodities and the related ETFs barring some occasional spikes which can be defined as a correction. Investors dying to look for a sustained trend reversal in these commodities, should wait for a big Chinese and Euro zone stimulus, which may bolster the regions’ waning manufacturing industry spurring the usage of oil and goading investors to buy more gold (notably, China is the world’s largest consumer of the yellow metal). Investors should also look out for a pull back in oil production and the return of geo-political tensions. As far as the Fed rate hike is concerned, we believe that the most of it has been priced in at the current level, suggesting that either way, it will be another interesting year for oil and gold.