HUI Marking Time, Perhaps Incubating

This graph of the AMEX Gold Bugs Index (the HUI) shows a holding pattern:



That holding pattern is a lot like gold's last week...



but the HUI:gold ratio still fell over the last two days after continuing to rise:



[All charts above are from Stockcharts.com]


The HUI is worth watching because the component companies' earnings are coming in. Two of them, Agnico-Eagle and Kinross, reported fourth-quarter earnings that were well above expectations even though there was skepticism about them. A skeptical article published in a mainstream paper, prior to their beats, says that not much good was expected from the reports.

This kind of skepticism is an earmark of an industry that's out of favor. As a three-year graph of the HUI:gold ratio makes plain, the former has been a laggard from time to time.



Over and above the credit crunch, high costs explain why. However, those costs are stabilizing now. If the rest of the HUI companies report unexpectedly high results, and the Index itself goes nowhere, its components are acting like undervalued companies that are ignored. In such a case, it's likely to take time for the Index to live down the skepticism (and cynicism) with which it and its components are viewed.

I must note, however, that the above should be taken as just commentary. Investing, or speculating, in gold stocks is risky; doing your own due diligence is essential. If the above has piqued your interest, please consider using seeking the advice of a qualified professional. Myself, I'm not one.


Note: There was little discussion about last week's gold market in the latest Financial Sense Newshour podcast, so I haven't posted the usual commentary about it this weekend. It does, however, have lengthy interviews with both Marc Faber and "The Original Gold Bug" James Dines.