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HUI -The Amex Gold Bugs Index Explained

PreciousMetalInvestment.com — Fri, 04 Jun 2010 12:48:03 +0000

The HUI Index otherwise known as the Amex Gold Bugs Index is an index of companies involved in gold mining and whose hedging of their gold production is confined to periods of 18 months or less.

Meaning that the miners contract to sell future production at a guaranteed price, a common practice in commodity trading in order to level out price fluctuations so maintaining a profitable level of operations for the duration of the futures contracts.

In the case of the HUI Index, because the hedging activity of its component miners is either non-existent, very short term or only a small proportion of their total gold production, it provides a short-term indication of the movement in gold prices.

The HUI index was launched in 1996 with a base value of 200. It may add or delete one or more stocks at any time and the equal US dollar weighting of the component stocks can also be adjusted at any time.

Rebalancing the portfolio takes place every quarter on the third Friday of March, June, September and December.

As of today, 4th June 2010, the index consists of fifteen leading miners as follows: -

Barrick Gold (ABX)
Agnico Eagle Mining (AEM)
AngloGold Ashanti (AU)
Yamana Gold (AUY)
Compania Mina Buenaventura S.A. (BVN)
Coeur d`Alene Mines (CDE)
Gold Fields Ltd. (GFI)
Goldcorp (GG)
Randgold Resources (GOLD)
Hecla Mining (HL)
Harmony Gold (HMY)
Iamgold Corp. (IAG)
Kinross Gold (KGC)
Lihir Gold (LIHR)
Newmont Mining (NEM)

The HUI Index is traded on the New York Stock Exchange under the symbol HUI. At the close of trade on Thursday 06/03/10 the price was $454.35.

A commonly used indicator to anticipate trends in the gold price is the HUI/Gold ratio.
The Philadelphia Gold And Silver Index (PHLX:XAU) is based on a similar principle and is also a closely observed indicator and tradable index used by precious metal bugs.

Gold Miners Profits Disappoint

PreciousMetalInvestment.com — Mon, 17 Aug 2009 14:05:58 +0000

Gold miners should be doing well. The price of oil falling back to an average around $60 a barrel from an all time high of $147 in mid 2008 has led to a significant lowering of the cost of production.

During the same period, for six of those months the gold price has been comfortably over $900 an ounce. This column has long been advocating the benefits of investing in gold miners, and, by the by, putting our money where our mouth is.

The fact is that gold miners as a whole have disappointed, and now we know why. Miners operating outside the United States have suffered from the falling dollar against their local currency when paying their tax bills, licences, habitat restoring costs, local wages etc.

The falling exchange rate has meant that while some miners have turned in record operating margins, their net profit margins have been dramatically reduced because of foreign exchange losses.

The principal, if not the only reason, that the gold market has been so bullish is that there is an expectation that the dollar will continue to lose value. Meaning that on the face of it, however well the gold miners do, their profits are going to be well and truly hit when it comes to paying up for their local commitments – almost a no win situation.

Have a look at Kinross Gold’s second quarter figures where every ounce mined cost only $481, production rose by 38% but their net profit margin was only 3.2% after adjusting for a $57.5 million loss on foreign exchange dealings. Other prominent miners have a similar story to tell.

Now the question is can the miners come up with a solution to this problem, there are some highly talented people in the mining industry used to finding solutions in what is essentially a high risk business environment?

We will be keeping our ears to the ground in the hope that mining companies can find a way round this problem and restore the level of their profits to reflect the price of the metal they produce. US investors deserve no less.

Banks Showing No Reluctance To Lend To Gold Miners

PreciousMetalInvestment.com — Wed, 04 Feb 2009 18:48:47 +0000

Unlike in other business sectors, banks are showing no reluctance to lend to gold miners.

Both major and junior producers are finding little difficulty in raising finance to develop their businesses. No other sector has shown the resilience of gold to the current stock market meltdown, currently little more than 10% off from its all time high in early 2008.

Despite the odd snippet of good news, today’s being some welcome uplift in buying activity in the US domestic housing market, the outlook for Anglo American economies and their currencies continuous to deteriorate, strengthening the appeal of gold as a safe haven asset.

Clearly the banks share this view and are eager to finance acquisitions and new projects in the sector. Buy gold and its miners would seem a reasonable interpretation of their thinking.

Cynics amongst us may be forgiven for thinking that banks, through their greed, ignorance and negligence of lending principles are responsible for the mess that global economies are now suffering. In which case, is lending to the gold mining sector just another error of banking judgement?

Amongst a number of other bullish indications is the increase in closures of unprofitable base metal producing mines, a number of which have gold (or silver) as a minor by-product and the cut back in exploration as costs soar. This on-going situation will surely only aggravate the annual decline in global gold production.

As much of the increasing investment money flows into the Gold ETFs that then purchase and store the physical metal, demand is likely to continue to increase unless unforeseen circumstances dictate otherwise.

On the downside demand from India, is reported to be unseasonably weak. Traditionally the Indian bullion and jewelry trade makes up a significant proportion of annual global demand, peaking in the wedding season starting after the harvest in September.

Among the factors accounting for the fall off are said to be concerns over a slow down in the countries economy, an increase in recycled gold in circulation and the price of the metal.

In the view of a number of influential analysts and bullion dealers, it has been many years since the outlook for gold has been so bullish with miners following suit, giving astute pickers that extra leverage denied to investors in bullion and ETFs.

Sooner or later the Indian market will recognise and accept that the odds are that the price of gold is unlikely to drop much below the $900 an ounce level for any length of time and may well see $1000 an ounce before very long. The possession of gold is too ingrained in the Indian psyche for them to stop buying for any length of time.

When they start again it will add further impetus to the metals bull run.

Buy gold and its miners now, on balance the odds are strongly in favour of a profitable run for 2009.

Investment Guide|Precious Metal Investment Expert » gold mines

HUI -The Amex Gold Bugs Index Explained

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