Steve Zito, Wharton School BS Econ, MS Fin, HTML Writers Guild
uses economic and technical analysis to forecast the direction of the stock market. The views in this newsletter are opinions only, and should not be solely relied on for your investment decisions.
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NASDAQ COMPOSITE
INDEX closed 1314.85

Sept. 2, 2002. Buy Gold Stock Mutual Funds

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Go To Page 2 August 30, Nasdaq Composite closed at 1314.85 -20.92. Nasdaq dropped 46.16 (-3.4%) since Aug. 19 page. Almost every year, gold sees a rally beginning in late March to mid-April rising to end of May which then resumes September to finish mid-October. This seasonal buying good for 20% to 50% rise in Gold Mining shares. With the overall markets and technology stocks in particular starting to exhibit extreme price moves, Gold Mining firm stocks also act as a powerful portfolio hedge against volatility, since price movement of gold shares over time has been independent of the movement of the overall stock market (zero correlation, very low R-square). I looked at the Gold Mining stock holdings in the Rydex Precious Metals sector fund and the holdings in the Profunds Precious Metals sector fund and the two funds hold almost the same top ten. The only difference, Profunds is leveraged, so Profund should go up more and down more. The largest holding in both funds is NEM, the gold stock I have been recommending since mid-August, Newmont Mining. Both funds have 22% of their total in NEM. Newmont traded up to 32 in May, then fell 31% down to 22 before rising just last week to finish 28.49. Net Asset Value of the Rydex Precious Metals fund 28.27, is almost identical to the price on NEM, the Rydex PM fund is down from 33.61 on May 31. Since July 2, the Rydex Precious Metals fund has tracked the stock price of Newmont Mining exactly. The Profund Precious Metals fund declined more sharply and also rebounded more last week. With news on Iraq, the TV media and common beliefs would have you expecting a huge rise in Gold prices, which boosts the Gold Mining stocks with 5-to-1 leverage. However, I believe the Gold price is more a function of foreign exchange value of the U.S. dollar. The dollar is weakening, reflecting slower U.S. growth with GDP growth down from over 5% at beginning of the year to 1.1% currently. As the U.S. economy slows, the dollar falls. As the dollar falls, the price of Gold rises. So I expect Gold's price to rise gradually over the next 2 months. Gold companies have a fixed cost to mine gold near $230 per ounce. Price gains in Gold are pure profit and go right to the bottom line. That's the 5-1 leverage. Also, seasonal demand for Gold from Japanese jewelry makers comes into play in October. So to sum it up, Rydex Precious Metals fund, or if you are more confident on the direction, then try a 150% leveraged Profund Precious Metals fund. Fund symbols are RYPMX (28.27), PMPIX (20.40). If Gold rises 10%, expect Gold stocks and RYPMX to rise about 50%, and the leveraged Profund PMPIX to rise about 75%. Subscribers to my Email Newsletter read this on Sunday. SPECIAL. Get 2 to 3 issues a week for 6 months for $50. For my 150 newsletters published here in the past three years, please visit my Site Directory and see if I was on target. Especially one year ago, when I forecasted the deep recession and U.S. unemployment going from 4.6% to 5.9%.
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