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

Up-date N° 15 / January 16, 2013

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 1 433.05 433.05
Profit         307.51
Profit (in %)         225%

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 versus HUI

The charts of the price of gold and the HUI-Index reveal astonishing facts:

  1. From the low in 2001 until the start of the financial crisis in 2008, gold shares increased twice as fast as the price of gold.
  2. The financial crises produced a flight to safety which caused gold shares to fall dramatically while the price of gold stood its ground fairly well.
  3. From the low of 2008 until 2011, when gold reached an all-time high of 1898 points, gold shares staged a significant comeback, even though they did not manage to catch up with the gold price.
  4. Since the all-time high in the gold price, it has corrected 12% while gold shares again have corrected more heavily, showing a loss of 32%.

What is the future for gold?


Gold remains in a solid up-trend. Within this up-trend, phases of euphoria are followed by periods of pessimism - a reflection of human behavior - based more on emotion than reason.

Each period of pessimism - as in 2001, 2006 and 2008 - was followed by remarkable upswings for an extended time frame.

in 2012, gold and gold shares went through another spell of pessimism. These never last. We are strongly recommending to buy gold and silver now, but particularly depressed gold and silver shares of solid companies with cash flow.

Gold Bugs Index

Gold and Historical Average

The long-term picture of silver


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 gold and silver shares in general, but specifically the undervalued junior sector.




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