Is it time to buy Gold stocks yet? This tool can help you decide
Today’s
PowerRatings
article is going to focus on Gold stocks by looking at the two most popular Gold
indexes — the XAU and HUI.
For readers who aren’t sure of the difference between the XAU and HUI, the HUI
is the symbol used for the Amex Gold BUGS (Basket of Un-hedged Gold Stocks) Index.
As mentioned above the index comprises of 15 gold mining companies that are
largely un-hedged or have a policy of being un-hedged. The XAU index is comprised of 16 gold and silver mining companies who may be hedged or un-hedged.
From 1995-2005, stocks rated 7 have outperformed the S&P 500 by a better than
4-1 margin over a five-day period. Stocks rated 8 have outperformed the S&P 500
by a better than 8-1 margin; stocks rated 9 have outperformed the S&P 500 by a
13-1 margin, and those stocks that have achieved a 10
PowerRating have
outperformed the S&P 500 by a 16.9-1 margin.
Over the same test period (1995-2005), stocks with a PowerRating of 1, 2 or 3 have underperformed the
S&P 500 over the next five-days. The 1’s have performed 4.9 times worse than the
S&P 500, the 2’s have performed worse than the S&P 500, and the 3’s have only
managed 90% of the S&P 500 performance.
PHLX Gold and Silver Index
(
XAU |
Quote |
Chart |
News |
PowerRating).
Index components and percent weightings as of 06/14/06. For the full component list,
click here.
| Name | Symbol | % Weighting | PowerRating |
| Barrick Gold | ( ABX | Quote | Chart | News | PowerRating) |
21.99 | 6 |
| Newmont Mining | ( NEM | Quote | Chart | News | PowerRating) |
20.70 | 5 |
| AngloGold Ashanti | ( AU | Quote | Chart | News | PowerRating) |
10.06 | 7 |
| Goldcorp | ( GG | Quote | Chart | News | PowerRating) |
8.17 | 7 |
| Gold Fields | ( GFI | Quote | Chart | News | PowerRating) |
7.90 | 7 |
| Freeport McMoran Copper & Gold | ( FCX | Quote | Chart | News | PowerRating) |
7.82 | 7 |
| Top 3 (ABX, NEM, AU) | 52.75 | ||
| Total | 76.64 |
As you can see from the table above, the XAU’s top three
components account for more than 52% of the index and the top six account for
almost 77% of the total. The remaining ten components percent weightings are significantly
lower and therefore exert much less influence on the XAU.
AMEX Gold BUGS Index
(
HUI |
Quote |
Chart |
News |
PowerRating).
Index components and % weightings as of 06/13/06. For the full component list,
click here.
| Name | Symbol | % Weighting | PowerRating |
| Newmont Mining | ( NEM | Quote | Chart | News | PowerRating) |
15.86 | 5 |
| Gold Fields | ( GFI | Quote | Chart | News | PowerRating) |
13.63 | 7 |
| Freeport McMoran Copper & Gold | ( FCX | Quote | Chart | News | PowerRating) |
9.08 | 7 |
| Total | 38.57 |
The HUI is a more evenly balanced index in terms of percent
weightings. While the top 3 components account for more than 38% of the index, the remaining 12
components are almost equally weighted (around the 5% level).
These two tables show how important it is to understand the
actual construction of an index. When it comes to the XAU, six stocks will
pretty much determine its direction. But the HUI is quite different. Anyone
attempting to determine the likely direction of the HUI needs to focus on all 15
components.
Just by looking at the PowerRatings of the XAU’s top 6 stocks (that range
between 5 and 7) one can extrapolate that the XAU is likely to outperform the
S&P 500 over the next five days. However, the top two holdings account for
more than 42% but have PowerRatings of 6 and 5.
However, with the HUI it’s much harder to come to that conclusion. Two of the three
stocks shown above have PowerRatings that suggest outperformance relative to the
S&P 500 over the next five days but they don’t carry enough weight in the index
to conclude the HUI will outperform. That means further research is required
before any conclusion can be reached.
Click here
to take a free trial of
You can also
attend a free
class on how to use
PowerRatings
presented by Steve Primo, our Director of Education.
Ashton Dorkins
Editor-in-Chief
Want a free month of
PowerRatings?
Send us your
PowerRatings
strategy and receive one free month of this exciting trading tool. If you are
already a monthly or annual
PowerRatings
subscriber, you will receive an additional three months if we publish your
strategy.