Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The AI Stocks Megatrend Big Picture - 8th Mar 21
The Future of FINRA, Regulatory Defense and Bad Stockbrokers - 8th Mar 21
Almost Everyone Is Online: But Most of the Money Isn’t - 8th Mar 21
It is Time for Stock Market Investor Caution? - 8th Mar 21
Gold Predictive Modeling Suggests A New Rally Targeting $2300+, But When Will it Start? - 8th Mar 21
Gold: Crisis or Opportunity? - 8th Mar 21
US Bitter Cold Snap is a sign of the times - 8th Mar 21
How Scan Computers Builds Your Custom Built PC - Scan.co.uk Review (2) - 8th Mar 21
US Economy, GDP, Unemployment, Inflation Impact on House Prices Trend 2021 - 8th Mar 21
BACK TO SCHOOL - UK Coronavirus Lockdown Ending - Summer Holidays & Booming Economy Ahead - 8th Mar 21
So, Where Is Gold's Corrective Upswing? - 7th Mar 21
US Treasury Yields Rally May Trigger Stock Market Crazy Ivan Event - 7th Mar 21
The Great Reset Is Coming for the Currency - 7th Mar 21
Gold Continues Declines on Bond Yield Jitters - 7th Mar 21
The Case for Inflation - 7th Mar 21
Dow Short-term Stock Market Trend Analysis - 6th Mar 21
Intel Rocket Lake EXPLODE on Launch - 11th Gen CPU's RUN VERY HOT Bad Cinebench R20 Scores - 6th Mar 21
US & UK Head for Post Coronavirus Pandemic Lockdown Inflationary Economic BOOM - 6th Mar 21
FED Balance Sheet Current State - 5th Mar 21
The Global Vaccine Race Against Time and Variants - 5th Mar 21
US Treasury Yields Rally May Trigger A Crazy Ivan Event (Again) In Stock Market - 5th Mar 21
After Gold’s Slide, What Happens to Miners? - 5th Mar 21
Racism Pandemic Why UK Black and Asians NOT Getting Vaccinated - NHS Covid-19 BAME - 5th Mar 21
Get Ready for Inflation Mega-trend to Surge 2021 - 4th Mar 21
Stocks, Gold – Rebound or Dead Cat Bounce? - 4th Mar 21
The Top Technologies That Are Transforming the Casino Industry - 4th Mar 21
How to Get RICH Crypto Mining Bitcoin, Ethereum With NiceHash - 4th Mar 21
Coronavirus Pandemic Vaccines Indicator Current State - 3rd Mar 21
AI Tech Stocks Investing 2021 Buy Ratings, Levels and Valuations Explained - 3rd Mar 21
Stock Market Bull Trend in Jeopardy - 3rd Mar 21
New Global Reserve Currency? - 3rd Mar 21
Gold To Monetary Base Ratio Says No Hyperinflation - 3rd Mar 21
US Fed Grilled about Its Unsound Currency, Digital Currency Schemes - 3rd Mar 21
The Case Against Inflation - 3rd Mar 21
How to Start Crypto Mining Bitcoins, Ethereum with Your Desktop PC, Laptop with NiceHash - 3rd Mar 21
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold Indexes: Comparing and Evaluating the HUI, XAU, GDX, XGD and CDNX

Commodities / Gold & Silver Stocks Mar 14, 2009 - 10:48 AM GMT

By: Lorimer_Wilson

Commodities Best Financial Markets Analysis ArticleMarket analysts, investment newsletter writers and financial planners are always commenting on how well, or poorly, the precious metals (read gold) mining sector is doing based on how a particular gold/silver mining index is trending but they are not telling you the whole story.


Why not? Because there are more than 40 precious metals mining indexes (indices) that dice and slice the components of the precious metals mining sector to arrive at a wide variety of insights and using any one of them as a basis on which to comment on the performance of the precious metals mining sector does not accurately reflect the true picture of the sector. Making investment decisions without first knowing how each index is structured; the eligibility criteria; the number of companies included; the specific market capitalization of the components; and the degree of concentration and average market capitalization of each index may lead to imprudent decisions. That's the fundamental problem. Below are descriptions of four popular indices and a fifth one that has been largely overlooked by precious metals stock and warrant investors, analysts and investment newsletter writers alike:

1. HUI is the symbol of the AMEX Gold BUGS ( B asket of U n-hedged G old S tocks) Index and is a modified equal dollar-weighted index of 15 gold mining companies that do not hedge their gold beyond 1.5 years. The best way to invest in this index is in HUI options. See: http://amex.com/othProd/prodInf/OpPiIndComp.jsp?Product_Symbol=HUI for current updates.

2. XAU is the symbol of the Philadelphia Gold and Silver Sector Index and is a market capital-ization index of 16 companies in the gold, silver and copper mining industry. The best way to invest in this index is through options traded on the index. For weekly updates see: www.nasdaqtrader.com/Dynamic/PublicIndex/XAU.txt .

3. GDM is the symbol for the NYSE Arca Gold Miners Index and is a modified market capitalization weighted index of 31 gold and silver mining companies. The best way to invest in this index is via the Market Vectors - Gold Miners ETF ( GDX ). For current updates see: http://www.amex.com/othProd/prodInf/opPiIndComp.jsp?prod_Symbol=GDM .

4. SPTGD is the symbol for the S&P/TSX Global Gold Index and is a modified market capitalization index of 19 precious metals mining companies with a minimum market capitalization of US$240 million with no component having a weight in the index greater or equal to 25%. The index is maintained by the S&P/TSX Canadian Index Committee and is calculated in Canadian dollars. The best way to invest in this index is via the iShares CDN Gold Sector Index ETF ( XGD ). For weekly updates see: http://.ca.ishares.com/product_info/fund_holdings.do?ticker=XGD

( GOX is the symbol of another popular gold and silver index called the CBOE Gold Miners Index but it is not included in this analysis as it is limited to only 11, almost exclusively large cap companies and, as such, is hardly representative of the precious metals mining sector as a whole.)

5. CDNX is the symbol for the S&P/TSX Venture Composite Index. This largely overlooked index consists of 558 companies of which 63% are involved in either extracting natural resources from the ground or involved to some degree in the exploration and/or development of such resources. 44% of the companies are engaged in the mining, exploration and/or development of gold and/or silver and other mineral resources; 18% in oil or natural gas pursuits and 38% in non-resources operations.

As Scott Wright concluded in a May'08 article entitled ‘Junior Golds and CDNX' at zealllc.com, “Since the CDNX is a junior equity exchange, and since mining is its heaviest-weighted sector, and since gold can be considered the driver of the mining stocks, is it too far-fetched to deduce that the CDNX is indeed a good, not perfect, proxy for the performance of junior gold stocks?” I agree! For updates see: ftp.cdnx.com/SPCDNXIndex/Components.txt .

Below the five indices are compared in detail as never before.

*U.S. Dollars

**NOTE : Market capitalization changes on a daily basis and the components of the various indexes change frequently as the market changes so it is important to note that the above information was as of March 4th/09. Accessing the hyperlinked references will provide you with current information.

*** Canadian Dollars

There you have it and it tells it all! It is clearly evident from the above analysis that:

a) the HUI is a small-based and narrow index of companies engaged in the mining of gold (99.0%) in which the largest 5 companies account for 49.5% of the total index weight.

Conclusion : The HUI Index is best used to assess the trend of large and medium cap gold mining companies and should not be used to assess the trend of precious metals mining companies as a whole.

b) the XAU is also a small-based index of companies but engaged in both gold and silver mining. The largest 5 companies account for a full 64.5% of the total index.

Conclusion : The XAU Index is best used to assess the trend of large cap gold and silver mining companies but should not be used to assess the trend of the precious metals mining sector as a whole.

c) the GDM/GDX is a more broadly based index both in number of companies included, the products mined and in the diverse range of companies included. 26% are large cap companies, 25% medium cap, 39% small and 6% micro).Indeed, the largest 5 companies only account for 41% of the total by index weight. The GTX also has the advantage of being easily traded.

Conclusion : The GDM Index is the best index to assess the trend of all but the smallest of precious metals mining companies. (See Adam Hamilton's, albeit out-dated, Dec.'07 article “GDX Gold-Stock ETF” at zealllc.com for additional insight on the GDX vis-à-vis the HUI and XAU).

d) the SPTGD/XGD is primarily an index of large cap gold mining companies in which the 5 largest components account for 66.8% of the total by index weight.

Conclusion: Since the XGD trades in Canadian dollars it should be used primarily by Canadian investors to track the trend of large cap gold mining stocks and not to assess the trend of the precious metals mining sector as a whole.

e) the CDNX is an extremely broadly based and diverse index of micro-cap companies of which almost 57% are primarily involved in the exploration and development of a diverse variety of natural resources. The remaining 43% of the 558 companies are also in the development stage of operations and, as such, are competing for the same pool of financing and management acumen as the natural resource companies to make their operations viable and prosperous.

Conclusion : The CDNX Index is an excellent proxy for assessing the health, performance and trend of the junior mining sector as a whole and micro-cap companies in general .

The next time you read an article in which someone is claiming that one of the indexes discussed here is revealing this or that about the trend of precious metals mining stocks (and usually gold stocks in particular) you will be in a position to know whether you are being given biased or informed advice and be able to take action accordingly.

‘No Bias, No Bull' (with an acknowledgement to Campbell Brown and her CNN program of the same name) is the type of information every successful investor wants to read. I trust this first of three articles on investing in gold mining shares (and warrants) helps you to make informed decisions in the precious metals mining sector.

By Lorimer Wilson

Lorimer Wilson is an economic/financial analyst and commentator who has written numerous articles (do a Google search for details) on the major economic and financial crises (past, present and impending) of our times plus articles on precious and rare earth metals, investing in times of crisis, analyses of gold mining indices and gold:gold mining index ratios and market timing indicators.

He is a Contributing Editor to www.preciousmetalswarrants.com and contributor to a large number of other precious metals, financial, economic, investment and op/ed sites. He can be contacted at lorimer.wilson@live.com .

© 2009 Copyright Nikki Alexander - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules