-- Posted Friday, 3 March 2006 | Digg This Article
This past week as been perplexing for out-of-the-market gold stock investors, for sure. And I think I know the reason why.
The HUI (Gold Bugs Index) to an ever increasing degree has become the flagship thermometer index of gold stocks, whether the "market" is going up or going down. Investors were able to assess their risk with this benchmark. If the HUI had completed investor-defined technical analysis hurdles an investor would conclude whether to get into the general gold stock market or exit. Customarily, the components would liftoff or recede as a group, albeit at different rates of appreciation or decline.
But, recent performance seems to have dashed this past group behavior. Why so? The culprit as I see it is the geographic makeup of the index. I have run each component thru the weekly MACD and SlowSTO technicals and indicate the results in the table below. NEM had some earnings disappointment and FCX has had geo-political problems in Indonesia. CDE seems to have weathered the Hugo Chavez threats OK, but maybe perhaps because it's recognition as a silver stock primarily is giving it its strength. But, by far the largest clump of "N"'s are South African. Why are they the predominant laggards? I don't know. Will they ever uncoil and head higher? I hope, and expect so. But, the point is...with the HUI so heavily skewed with SA gold stocks it has thrown this index into disorder, and excluded HUI watchers from participating in the apparent breakout elsewhere evident.
Additionally, as silver is now running on its own stilts there is a definite need for a silver stock index - with volumes. It would be a helpful tool in conjunction with the Gold-to-Silver Ratio. Precious metals investors need to know where their precious funds can best be deployed for maximum return. They need a reliable Risk/Reward thermometer. Let's go now to below the HUI table and look at a couple of other factoids.
| HUI Index Components as of: 03/01/06 | |
|
|
 |
Company Name | | % Weight Breakout Y or N? |
|---|
|
| Gold Fields Ltd Adr | GFI | 17.37% N |
| Newmont Mining | NEM | 13.08% N |
| Freep't Mcmoran Copper&gold'b' | FCX | 8.04% N |
| Agnico Eagle Mines | AEM | 5.95% Y |
| Coeur d'alene Mines | CDE | 5.85% Y |
| Hecla Mining | HL | 5.63% ** |
| Goldcorp Inc | GG | 5.44% Y |
| Golden Star Resources | GSS | 5.44% N |
| Meridian Gold | MDG | 5.32% Y |
| Iamgoldcorp | IAG | 4.89% N |
| Kinross Gold | KGC | 4.78% N |
| Randgold Resources Ads | GOLD | 4.61% N |
| Harmony Gold Mining Adr | HMY | 4.60% N |
| Glamis Gold Ltd | GLG | 4.57% N |
| Eldorado Gold Corp | EGO | 4.44% ** |
|
** AWAITING MACD confirmation
Look at this now how the value of the South African rand ($ZAR, dashed red line) has pretty closely followed the HUI....until this year, that is. Since then it's been flat. If the future ascendancy of the South African golds is dependent on a stronger rand than you might have a long wait as per this rand
chart.
Now, if that isn't enough to throw you SA gold stock investors into a tizzy, try this next one. Here's the SA rand with the HUI (dashed-purple) and HMY (dashed-red) as overlays. With the rand's drop in January, HMY was effectively stove-in as well and the HUI kept going!!
As many investors as well as myself had been using the HUI for entry and exit advice, the fall in the SA golds was enough to trigger a selloff all around, enough so to flash a sell of the HUI!
On the other hand, SA gold investors may soon be rewarded as by the
dollar chart which has just now flashed a technical sell signal. You can plug in the rand by simply typing in $ZAR to see the relative strength vs. the US$.
Actually when you give it some thought we may be sitting pretty. The SA components of the HUI are highly touted, recommended and held in many portfolios if for no other reason than they are HUI components with only cursory attention devoted to currency risk. No doubt those holding them must be befuddled as to why they haven't followed the recent pop-back in the golds. Ah, yes, but they have us, their knights in paper armor to bail them out - - but not yet! The technicals for the "N"'s so noted above still have a way to go...down. We will be there when they capitulate and throw in the towel in disgust and buy into others that are well into their advancements.
A couple of closing comments in summarizing. Since SA gold miners must sell their gold to the SA government for the domestic currency while their expenses, notably oil, are in US$'s they are in a box. If you're a South African holding gold you're doing quite well as per this
chart.
Some of you will undoubtedly recall the rumor going around in the late 1970's/80's that South Africa was negotiating with Iran to swap gold for oil. And that was before the Marxist-inspired "anti-apartheid" campaign. But, now with the Communist ANC in firm control of SA it would seem even more in character for some arrangement like this to be re-visited. And, another thing. We don't know how much, when or even if the SA government is delivering mined gold to the London bourse which they have traditionally done. Now, then, wouldn't if be the cat's meow if they flipped off the international bankers and delivered to the newly opened Dubai bourse!! Yikes...would that land them on Jorge Boosh's list of terrorist states? Probably not as they are friendly Communists. Are the world's banking elite controlled by our Fed powerful enough to keep them in line?
Just maybe we'll find out.
- - CV
-- Posted Friday, 3 March 2006 | Digg This Article
