Trading without indicators is like running blind and it encourages emotional trading that is the bane of successful investors. Below are brief descriptions of 5 of the most popular gold mining company indices and how they should be used in conjunction with the price of gold to determine the future movement of gold bullion and gold mining stocks. (For a much more indepth understanding and analysis of these indices please refer to my recent article entitled “Gold Indexes: Comparing and Evaluating the HUI, XAU, GDX, XGD and CDNX”.)
The HUI Index
The AMEX Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of 15 large cap (80%) and medium cap (19.5%) gold mining companies that do not hedge their gold beyond 1.5 years. The 3 largest companies make up approx. 37%* of the index by weight with the remaining 12 companies, at 4-6% each, making up the balance. (*as of March 4th, ’09) See: http://amex.com/othProd/prodInf/OpPiIndComp.jsp?Product_Symbol=HUI for more current information.
The XAU Index
The Philadelphia Gold and Silver Sector Index (XAU) contains of 16 large (82.5%) and medium (15%) capitalization weighted companies engaged in the mining of gold, silver and copper. Here the same 3 largest companies account for 48.6% (as of March 4th, ‘09) of the index by weight. See: www.nasdaqtrader.com/Dynamic/PublicIndex/XAU.txt for more current information.
The SPTGD Index
The S&P/TSX Global Gold Index (SPTGD) consists of 19 modified market capitalization-weighted companies (77.5% large cap; 18.7% medium cap) involved in precious metals (primarily gold) mining. The 3 largest cap companies dominate the index with 51.5% (as of March 4th, ‘09) by weight. A proxy for the index is either XGD or CMW and both trade in Canadian dollars on the Toronto Stock Exchange. See: http://.ca.ishares.com/product_info/fund_holdings.do?ticker=XGD for more current information.
The GDM Index
The NYSE Arca Gold Miners Index (GDM) is a modified market capitalization weighted index of 31 companies (72% large cap; 22% medium cap and 5.5% small cap) involved primarily in the mining of gold and silver. The 3 largest cap companies again dominate the index (at 30% by index weight) but to a much lesser extent than in the HUI (37%), the XAU (48.6%) or the SPTGD (51.5%). The GDM Index represents the largest cross-section of precious metals mining companies exploring, developing and mining around the world. A proxy for the index is GDX. See: http://www.amex.com/othProd/prodInf/opPiIndComp.jsp?prod_Symbol=GDM for more current information.
The CDNX Index
The S&P/TSX Venture Composition Index (CDNX) consists of 558 micro cap companies of which 44% are involved in the early stages of the exploring, developing and/or mining and 18% in oil and gas exploration. This is the only index that gives insight into the price trends of micro cap companies almost exclusively (99.4%).
