Gold HUI

This week, we'll take a look at the leading gold mining stocks index, the HUI, and find that while the index does a good job of identifying gold's peaks and troughs, mining stocks haven't generally provided the positive metal leverage that investors sometimes claim.

The first combined chart shows the HUI at the top and the gold price at the bottom. The first thing to note is that the HUI has been moving within a very well-defined channel since its inception nearly 30 years ago. Secondly, the HUI is about to break the long-term yellow resistance line that dates back to 2011. That's why investors in mining stocks have reason to be optimistic, but we'll see in a moment that they shouldn't get carried away. An important point to note on this chart is that when the HUI reaches significant lows (marked by the white vertical lines) or peaks in its channel, significant peaks and troughs for gold are also formed.To determine when gold will finally reach the long-term peak I anticipate over the next decade, I use several indicators, one of which is when the HUI touches the upper line of its channel.Of course, the other important thing to remember is that the HUI has broken free of a major descending resistance line, and I expect gold to rally strongly from this point, as it did in 2003.

The second chart also combines the HUI and gold, but I'd like to draw your attention to another point. When the HUI made a major breakthrough in 2003 around 140, gold was at around $340. Seventeen years later, when gold reached around $1,450, the HUI was back at 140. In almost twenty years, gold has multiplied by more than four, while the HUI has made absolutely no progress!It's also worth noting that the HUI has only risen by around 50% since its creation in 1996, while gold has multiplied by 6 over the same period. So, while gold equities may offer positive leverage over shorter periods, their relative long-term performance is rather mediocre. The bottom line is clear: buying physical gold protects your purchasing power over long periods, while mining stocks are more for speculation. Reproduction, in whole or in part, is authorized provided it contains all hypertext links and a link to the original source. The information contained in this article is purely informative and in no way constitutes investment advice, nor a recommendation to buy or sell.