What Is the NYSE Arca Gold BUGS Index?
The NYSE Arca Gold BUGS Index, better known as the HUI Gold Index, is an index of publicly-traded gold-mining companies that is useful for tracking short-term trends in gold prices. Depending on the platform you are using to access market information, the index will be listed under the ticker symbol ^HUI or HUI.
Launched in March 1996, the NYSE Arca Gold BUGS Index includes companies who hedge their gold production for no more than 18 months in advance. For this reason, their share prices—and, by extension, the index—are very sensitive to short-term movements in the price of gold.
- The NYSE Arca Gold BUGS Index is a modified equal-dollar weighted index.
- It tracks gold-mining companies that engage in relatively limited hedging of their forward gold production.
- The NYSE Arca Gold BUGS Index gives additional weighting to its three largest holdings, re-evaluating its composition four times per year.
Understanding the NYSE Arca Gold BUGS Index
Gold mining companies make considerable investments in land rights, mining equipment, and workers in order to mine and process gold. Since their expenses stay pretty much the same regardless of the price of gold, these companies can become extremely profitable when gold prices increase, especially if the increase is sudden.
On the other hand, they risk becoming unprofitable if the price of gold sinks below the level that can sustain their operating expenses. For this reason, most gold-mining companies hedge their risks through methods such as selling gold futures contracts. By doing so, they can lock in a profitable sale price for the gold they mine.
While this protects them against the risk of falling prices, it can also prevent them from enjoying the outsized profits that result when the price of gold jumps unexpectedly.
Benefits of the NYSE Arca Gold BUGS Index
Speculating on the price of gold is not for the risk-averse investor. That said, investing in gold mining companies that have relatively small hedges in place can be an attractive way for risk-tolerant investors.
The NYSE Arca Gold BUGS Index specializes in these kinds of relatively unhedged gold miners. The acronym BUGS captures this motivation, as it stands for “basket of unhedged gold stocks.” As a modified equal-dollar weighted index, the NYSE Arca Gold BUGS Index allows all of its components to have equal weighting, with the exception of its three largest components, which are given additional weight. The component companies are reviewed once per quarter, in March, June, September, and December of each year.
Requirements of the NYSE Arca Gold BUGS Index
Component companies are selected based on a variety of criteria, including minimum market value, trading volume, and share price. To be included in the index, a company must meet the following criteria:
- It will either be listed on the New York Stock Exchange (NYSE), NYSE American, or Nasdaq.
- Its current market capitalization must be at least $75 million (not adjusted for free float).
- Its trading volume in each of the last six months must not be less than 500,000 shares.
- Its current last traded price is greater than $3.00.
The Index Administrator has the discretion to include companies that do not meet the minimum levels for inclusion. For no more than 10% of the weight of the index, the minimum market capitalization can be at least $50 million and the minimum monthly volume requirement can be 400,000 shares for each of the last six months.
The NYSE Arca Gold BUGS Index is one of the two most prominent precious metals indices on the market, the other being the Philadelphia Gold and Silver Index (XAU). The two main differences between them are that the NYSE Arca Gold BUGS Index exclusively tracks gold-mining stocks, whereas the XAU index tracks companies involved in both gold and silver mining, along with including companies that hedge their production beyond 18 months.
Real-World Example of the NYSE Arca Gold BUGS Index
When it was first launched, the index had a starting value of 200, which sank to 40 by Dec. 2000 and rose to a high of almost 575 in March 2011. The index roughly doubled between March 2020 and Oct. 2020, increasing from 160 to roughly 330.
While you cannot invest or trade directly in the HUI, or any index, it can provide information to use in your analysis, such as by identifying gold-mining companies that may be especially sensitive to changes in gold prices. As of Jan. 2021, these three companies make up a large component of the NYSE Arca Gold BUGS Index: Newmont Corporation (NEM), Barrick Gold Corporation (GOLD), and Yamana Gold Inc. (YRI.TO).