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Overview:
Two major gold indices dominate the market--the Philadelphia Stock Exchange’s
XAU and the AMEX’s Gold BUGS Index (HUI). The major difference between the two
is that the BUGS index is made up exclusively of mining stocks that do not hedge
their gold positions more than a year-and-a-half into the future. This makes the
BUGS Index much more profitable than the XAU when gold prices are rising, but
can also compound its losses when gold declines. BUGS is an acronym for Basket
of Unhedged Gold Stocks. The index was introduced on March
15, 1996 with a starting value of 200.
Composition:
The AMEX Gold BUGS Index is comprised of 15 of the nation's largest
“unhedged” gold mining stocks. It is a “modified equal-dollar weighted”
index. As a result, most of the index's component stocks are equally weighted,
yet the largest stocks still carry a greater weight than the smallest.
The table below lists the components of the Gold
BUGS Index along with the weighting that each stock carries in the index (data
as of August 2004):
| Company |
Symbol |
%
of Index |
| Newmont Mining |
NEM |
16.1% |
| Gold Fields |
GFI |
15.9% |
| Freeport McMoran |
FCX |
10.3% |
| Iamgoldcorp |
IAG |
5.5% |
| Meridian Gold |
MDG |
5.5% |
| Harmony Gold Mining |
HMY |
5.3% |
| Goldcorp |
GG |
5.2% |
| Randgold Resources |
GOLD |
5.1% |
| Agnico Eagle Mines |
AEM |
4.9% |
| Kinross Gold |
KGC |
4.8% |
| Glamis Gold |
GLG |
4.7% |
| Hecla Mining |
HL |
4.4% |
| Eldorado Gold |
EGO |
4.3% |
| Golden Star Resources |
GSS |
4.0% |
| Coeur D'Alene Mines |
CDE |
4.0% |
Positives:
When gold prices are on the rise, the Gold BUGS Index provides an excellent way
for investors to capitalize on that increase. The index has a high correlation
to the spot price (current price) of gold.
Drawbacks:
When the price of gold declines, the Gold BUGS Index tends to fall much faster
than its hedged cousin, the XAU. In addition, the firm's unusual index weighting
system can be difficult to understand.
How can I trade/invest in this index?
There are numerous ways to invest in gold. You can buy different funds, futures,
options, or you can invest directly in the metal itself. Our recommended way to
invest in this index is through options traded on the HUI index.
Additional Information:
AMEX
Gold Bugs Index (HUI)
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