What is REALLY happening in the precious metals sector? You'll be very surprised!
Market analysts, investment newsletter writers and financial planners are always commenting on how well the precious metals mining sector is doing, which specific mining company stocks show better than average potential, how well the HUI or XAU indices are performing, etc but they are not telling you the whole story. There is much more happening than such assessments would suggest and you are going to very surprised by what the analysis below reveals.
Like the broad market DOW, S&P 500, S&P/TSX etc indices, there are a number of precious metals (gold or otherwise) mining indices that dice and splice the components of the precious metals mining sector to arrive at a wide variety of insights. Not just the 2 or 3 that you might be aware of but as many as 42 in all (see a complete list below).
The 3 most popular precious metals mining indices are:
a) the Philadelphia Gold & Silver Index (XAU) - a capitalization weighted index composed of 13 companies involved in the gold and silver mining industry. Newmont Mining Corp., Barrick Gold Corp., and Anglogold Ltd. make up 49.38% of the index.
b) the Amex Gold BUGS ( Basket of Unhedged Gold Stocks) Index (HUI) - a modified equal dollar weighted index of 15 companies involved in gold mining and non-hedging of their gold production beyond 1.5 years. Newmont Mining Corp., Gold Fields Ltd. and Freeport McMoran Copper Gold 'b' make up 43.21% of the index.
c) the S&P TSX Gold Index (SPTGD) - an index of the 20 largest gold mining companies trading on Canada's Toronto Stock Exchange.
Only 3 companies; Goldcorp, Kinross Gold and Meridian Gold are included in all 3 indices. Anglogold, Agnico Eagle Mines and Pan American Silver Corp. are unique to the XAU; Helca Mining and Golden Star Resources are unique to the HUI.
But what about those other indices? Here they all are in order of performance during 2005:
| Rank | INDEX NAME | 2005 Incr. |
| 1. | Precious Metals Warrants Index (PMWI) (Composite) | 51.4% |
| 2. | DJ US General Mining Index | 46.0% |
| 3. | S&P/TSX Capped Diversified Metals and Mining Index | 45.2% |
| 4. | CBOE Gold Stock Index | 44.6% |
| 5. | FTSE Gold Stocks Index - Africa | 42.5% |
| 6. | DJ US Mining Index | 41.9% |
| 7. | FTSE Gold Mines Index - Australasia | 39.9% |
| 8. | Philadelphia Gold and Silver Index (XAU) | 37.0% |
| 9. | Barron’s Gold Mining Index | 36.2% |
| 10. | DJ Gold Mining Micro Sector Index | 33.3% |
| 11. | FTSE Gold Mines Index - America | 31.5% |
| 12. | Amex Gold Miners Index | 29.1% |
| 13. | Amex Gold BUGS Index (HUI) | 28.6% |
| 14. | Dow Jones Precious Metals Index | 28.3% |
| 15. | Global Gold Index | 28.2% |
| 16. | Shultz Gold Stocks Index | 27.8% |
| 17. | ISE Gold Index | 27.3% |
| 18. | S&P/TSX Gold Index (SPTGD) | 25.8% |
| 19. | Globe Precious Metals Peer Index | 23.3% |
| 20. | iUnits Gold Sector Index | 22.8% |
| 21. | DJ - AIG Precious Metals Spot Index | 21.3% |
| 22. | DJ - AIG Precious Metals Total Return Index | 20.4% |
| 23. | DJ US Gold Mining Index | 19.7% |
| 24. | Goldman Sachs Commodity (Precious Metals) Index | 19.5% |
| 25. | Goldcolony Index of Junior Gold Stocks | 18.9% |
| 26. | Gold TRAKRS Index | 18.2% |
| 27. | iShares COMEX Gold Trust Index | 17.6% |
| 28. | Australian Gold Emerging Producers Index | 16.8% |
| 29. | DJ - AIG Precious Metals Index | 16.6% |
| 30. | Canadian Gold Producers Index | 13.4% |
| 31. | Australian Gold Producers Index | 7.4% |
| 32. | Australian Gold Juniors Index | 5.9% |
| 33. | DJ US Platinum & Precious Metals Index | 2.8% |
| 34. | CBOE Power Packs Gold Index (Started July/05) | N/A |
| 35. | IBD Gold Stock Index | N/A |
| 36. | Junior Gold Stock Index (J. Taylor) | N/A |
| 37. | TSI Gold Stock Index | N/A |
| 38. | South African Gold Producers Index | N/A |
| 39. | Financial Sense Junior Gold Index (Composite) | N/A |
| 40. | Financial Sense Junior Gold Index (Junior Producer Cos) | N/A |
| 41. | Financial Sense Junior Gold Index (Junior Development Cos) | N/A |
| 42. | Financial Sense Junior Gold Index (Junior Exploration Cos) | N/A |
Footnote: The Precious Metals Warrants Index is a Price Weighted Index and includes all warrants which were trading for at least 12 months as of 12/31/05. Calculations reviewed by Brenda Roxanne Samaniego, CPA.
Never heard of most of them? True, most are rather obscure, but one of them is going to change the way you look at investing in the precious metals mining sector from now on. It is #1 on the list above - the proprietary Precious Metals Warrants Index (Composite). More than 50 companies in the precious metals mining business offer warrants which are trading in the United States and Canada (in addition to their common stock) and they are now regularly tracked, analyzed and published by PreciousMetalsWarrants.com.
Yes, 2005 was a good year for precious metals with rhodium up 125.6%, uranium 76.8%, palladium 38.2%, silver 29.5%, ruthenium 27.9%, gold 18.2%, iridium 14.7%, and platinum 12.1% while molybdenum was down 11.7%. It was even better for the companies who mined the various minerals with their stocks up in excess of 40% on average depending on the index used. But the best way to have played the precious metals market in 2005 was to have been invested in a complete basket of precious metals warrants which realized an outstanding 51.4% increase.
Then there is the two-fold leverage of warrants but that is another story (see a recent article titled, "Why Warrants? Why Now? (Part 2)".
