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Gold Bugs Index (HUI): Buy, Hold or Sell?

Up-date N° 14 /

Amex Gold Bugs Index (HUI)
Buy Date Amount Buy Price Total (USD) Price Today Value Today
March 12, 2003 1 125.54 1  
Total 1 125.54 1 397.74 397.74
Profit   272.20
Profit (in %)   117%
OUR LONG-TERM RECOMMENDATION   STRONG BUY
OUR SHORT-TERM RECOMMENDATION   STRONG BUY


NYSE Arca Gold BUGS Index

The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining.

The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years.

The HUI Index was developed with a base value of 200.00 as of March 15, 1996. Adjustments are made quarterly after the close of trading on the third Friday of March, June, September & December so that each component stock represents its assigned weight in the index.


The underperformance of gold shares in relation to gold since the beginning of 2008

Gold Bugs Index

Gold

The two charts, showing the gold price and the HUI Index, illustrate many aspects of market behavior that an investor needs to know, most importantly:

In the long-term, gold shares tend to go up three times as fast as the gold price but

  1. Gold- and silver-shares are more volatile than the price of gold.
  2. Gold- and silver-shares generally outperform gold - but not always - at times the situation is reversed as since 2008.
  3. Gold- and silver-shares do not move in a parallel fashion, depending whether the companies are already producing, are near-term producers or explorers and developers.

During the recent general down-turn of stock markets, which also affected gold and silver shares, explorers and developers were hardest hit. They offer now a unique recovery potential.

Gold/Gold and Silver Index


The long-term picture of the gold price

Gold


Should you own gold rather than gold shares?

The extreme of 2008, created by panic selling as a result of the financial crisis, produced an once-in-a-lifetime buying opportunity. However, few were able to benefit from the situation as fears for the worst dictated investors' behavior.

On fundamental values, gold and silver shares trade at historic low valuations as in 2008 when you were able to buy companies

  • for less than the cash in the bank
  • for less than $ 10 per ounce in the ground
  • for less than 1,000 times annual gold production
  • for a dividend yield of 2.5% or more

Because of this dramatic price decline in these stocks, investors have the opportunity to purchase explorers, developers and producers, often referred to as juniors, at about half of the company's net asset value (NAV).

The TIMELESS PRECIOUS METAL FUND and The SIERRA MADRE GOLD & SILVER VENTURE CAPITAL FUND are ideal vehicles to benefit from the coming up-swing of the shares gold and silver shares in general, but specifically the undervalued junior sector.


Conclusion:

Buy Gold and Silver shares before it is too late!

 

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