HUI and XAU stocks

[drbubb]

(Kicking this off with an article from FSU):

 

Investing in the XAU and HUI for small investors

by David Urban | February 14, 2008

 

Many small investors have heard of the XAU and HUI indices through discussion by financial professionals but investment vehicles giving small investors access is another story. Currently, the futures market offer the best access.

 

However, small investors can construct their own home made indices as I will show.

 

The XAU is a capitalization-weighted index of 16 gold and silver producers used by professional and institutional investors to gain access to the large cap gold and silver mining stocks.

 

One can gain more information about the index here:

 

http://www.phlx.com/products/xau.html

 

By clicking on the ‘Component Issues, Weightings and Index Divisor’ link one can see in a transparent manner how the index is calculated on a daily basis. If an individual investor wanted to invest in the index with $10,000 as an example, it would as simple as transferring the data to an excel spreadsheet and adding a column next to the % of MV and multiplying by percentages by 100 as I have done below.

 

 

The HUI is a bit different in that it is a modified equal dollar weighted index. That means that each company is assigned a weighting in the index and its shares are adjusted quarterly to account for any fluctuations and bring their values back in line with their proper percentages.

 

More information on the HUI can be found here:

 

http://www.amex.com/othProd/prodInf/OpPiIn...duct_Symbol=HUI

 

By clicking on ‘Show Index Components’ one can view the components and their percentages. A personalized index, similar to the XAU, can be constructed as follows:

 

 

Mind you, this exercise does not account for transaction fees which may adjust the totals somewhat. Trading with an online broker will make it easier to obtain odd lot shares as well. Given the changing stock prices you will not be able to hit the percentages exactly but for a small investor looking for access you can create a personalized index on your own.

 

Source: American Stock Exchange website (www.amex.com), Philadelphia Stock Exchange (www.phlx.com)

 

/see : http://www.financialsense.com/fsu/editoria.../2008/0214.html

[drbubb]

Does GOLD outperform Gold stocks?

 

That's Nick Barisheff's idea:

 

"Bullion offers superior performance during monetary uncertainty

 

During a secular bull market in precious metals that is driven by monetary factors, bullion tends to outperform mining stocks. This is because, globally, investors will turn to physical bullion as a safe haven, rather than to shares of mining companies. This phenomenon was confirmed in the 1970s gold bull market, when the US dollar experienced significant declines, just as it is today. The monthly closing prices of shares of Homestake Mining, the largest North American producer at that time, increased by a respectable 8 times. The monthly closing price of gold, however, increased by 15-fold."

 

see: http://www.financialsense.com/fsu/editoria.../2008/0213.html

 

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I WANT to look at this argument more closely (when I have some more time)