HUI Index Dissected

Indexes play a very important role for investors in general. They show a broad state of the markets or industries they measure. Furthermore, it could also serve as a role of a leading indicator or a benchmark. For example, the most widely watched indexes in the world today are the Dow Jones Industrial average and the Standard and Poor 500. Most of the world has their eyes on these indexes because they represent a state of the US economy and investors optimism. Markets in theory are efficient; therefore indexes as a market measuring tool should be effective to reveal current business conditions.

In the gold industry there are two major mining indexes: AMEX Gold BUGS Index, symbol HUI and Philadelphia's Gold & Silver Index – XAU. These indexes represent portfolios of major gold companies, and designed to show current state of the gold mining market. It’s important to note that Gold and gold stocks don’t always move together and that’s why gold investors follow those two indexes.

So let us take a look at the HUI index or Amex Gold BUGS Index. BUGS stands for Basket of Unhedged Gold Stocks, and has all major gold companies that might benefit from the appreciation in the price of gold. Here is the current list (02-29-08) of companies sorted by weight in the HUI Index.

HUI Index list of companies:


The biggest companies are Barrick Gold, GoldCorp and Newmont Mining. They represent 40% of the index and would have the highest impact on the index movements. Although it might not be important to remember every single company, it’s a good practice to at least follow those 3 major companies. On this subject, Calvin just brought to my attention an interesting article by Jason Hommel about how Barrick Gold might have some headged Project positions that they are trying to cover up. I would advise to be very careful and do a lot of research before considering Barrick Gold as an investment. Here is the link to that article: Sell Barrick: A Sneaky Hedger!

At this point, we’ll study the technical picture of each company to get a general idea of what’s moving the index today. Click here for HUI Index dissected: Technical analysis.

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