When I started learning about investing, I was interested in not only stocks and bonds but other assets that could make money. Gold is a strange one, it’s useful to so many people as a store of value, but other people would see gold as completely useless. Apart from being an investment opportunity for many people, it is also used a lot in the electronics, jewellery and medical industries, from conducting electricity to being a dental implant, it’s used in many different ways. In this short post, I will take a look at the HUI Gold index. If you already invest in gold, you may have come across the HUI Gold Index and wondered what it is and why it’s important. The HUI Gold Index, also known as the NYSE Arca Gold BUGS Index, is a modified equal dollar-weighted index that tracks the performance of companies involved in gold mining.
Now, this is completely different to just buying gold, as the companies in this index actually do something, they are mining gold that could be used for the many applications that have been mentioned above. One of the key differences between the HUI Gold Index and other gold indices, such as the Philadelphia Gold and Silver Index (XAU), is that the HUI only includes gold producer stocks, whereas the XAU also includes silver producers.
What is the HUI Gold Index and Why is it Important?
The HUI Gold Index was designed to provide investors with exposure to the movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years. It was developed with a base value of 200.00 as of March 15, 1996, and currently consists of 15 of the largest and most widely held public gold production companies. Therefore owning the HUI index can give you exposure to gold!
Investors use the HUI Gold Index to track the performance of gold mining companies and to gain exposure to the gold market. Since bottoming in late 2000, the HUI Gold Index went on to be the top-performing US stock sector of the decade, rising by about 1600%.
In addition to tracking the HUI Gold Index, investors may also use the HUI-gold ratio to compare the relative strength of the gold stocks versus actual gold. The ratio is calculated by dividing the value of the NYSE Gold BUGS Index by the current price of gold.
Understanding the Correlation between the HUI Gold Index and Gold Prices
Generally, yes, if the price of gold increases, the price of the index increases because the profitability of the company increases with the price of gold. If they mine 25kg of gold and the price increases, then they will be more profitable.
Overall, the HUI Gold Index is an important tool for investors looking to invest in the gold market and gain exposure to the performance of gold mining companies. It provides a way for investors to track the performance of the gold market and make informed investment decisions.
To discover key strategies for successful investing, take a look at our previous post about the Big Mac Index. It’s just a click away.