What is the BUGS Index (HUI)
The BUGS Index (HUI) is an index of companies involved in gold-mining. BUGS is an acronym for "basket of unhedged gold stocks." HUI is the ticker symbol for the index. The companies included in the BUGS Index do not hedge their gold production beyond a year and a half, which gives the index substantial exposure to short-term movements in gold prices. The index trades on the New York Stock Exchange (NYSE).
Launched in March 1996, the BUGS index had a value of 200. It was the best-performing US stock sector of the 2000s, rising by about 1600%.
BREAKING DOWN BUGS Index (HUI)
The BUGS Index (HUI) tracks the movement of sixteen gold-mining companies, including Newmont Mining Corporation, Barrick Gold Corporation, Goldcorp Inc. and Iamgold Corporation. The index is known as a modified equal-dollar weighted index. With equal-weighting, all components receive equal consideration. Since the HUI is modified, it gives the three companies with the most significant market capitalization, greater weight.
Most indexes weigh companies based on market capitalization instead of price. If a company's market cap is $1,000,000 and the value of all stocks in the index is $100,000,000, the company would be worth 1% of the index. Indexes are continually calculated to provide accurate reflections of the market throughout the trading session.
The BUGS Index can respond to changes in the market by adding or removing companies from the index. It is adjusted quarterly, in March, June, September, and December.
A Comparison of BUGS to XAU
The BUGS Index is one of the two most prominent precious metals indices on the market. The other is the Philadelphia Gold and Silver Index (XAU). The two indices have much in common, but there are two primary differences between them.
- The BUGS index tracks gold mining stocks exclusively, while the XAU index tracks companies involved in both gold and silver mining.
- The XAU index includes companies that hedge their production beyond a year and a half, while the BUG index is limited to companies that do not hedge their production beyond a year and a half.
In general, the BUGS index and the XAU index respond to market forces in similar, though not identical, ways. Significant movement of gold mining stocks in either direction will register in both indices. Also, the different makeup of the two indices ensures that they will never move identically.
Trading Using HUI Information
While you cannot invest or trade directly in the HUI, or any index, it can provide information to use in your analysis. Traders can compare the HUI to the price of gold bullion to determine market direction. By using comparisons like this, those interested in futures or options can see the strength of the stocks of gold-related companies against the price of the metal. Further, traders may compare the HUI to the XAU to derive a ratio between the gold only index and the dual-metal index.
Other indices to review include the Dow Jones U.S. Mining Index (DJPM) which follows a basket of miners and the S&P Metals and Mining Select Industry Index (SPSIMM) that contains companies classified in the metals and mining sub-industries.