The Amex Gold Bugs Index (HUI):
A Golden Opportunity to Buy Gold Shares!
The long-term picture
In November 2000, the bear market in gold shares, as represented by the Amex Gold Bugs Index, ended when this Index fell to 35.41 points, down more than 80% from the 1996 level. Six months later, this index had more than doubled, reaching almost 80 points.
After the consolidation of this strong advance that lasted until January 2002, another powerful rally followed lifting the index once again by 100% to reach a high of 154 points in June.
Worried gold bugs are now suffering spells of self-doubt as the gold price had reached new recovery highs while the Amex Gold Bugs Index has been unable to surpass the high established in June.
Nevertheless, the up-trend is intact. The up-trend should offer considerable support along with the 100-week moving average which stands at 113 points.
The medium-term picture
Medium-term, we believe that the consolidation within the up-trend is slowly drawing to its end, even though short-term unpredictable price movements are likely as the war draws ever closer.
We witnessed a major correction in June of last year. A rally followed and a correction in
September/October.
In December a powerful surge lifted the index back to the June high.
We are currently passing through another correction in the up-trend which we believe will end somewhere around 120 points.
The short-term picture
Short-term, the Amex Gold Bugs Index shows that it is in a down-trend. But we also notice that we are approaching an important support which should absorb any selling at the level of 115 points or above.
Iraq and Gold
As we have seen above, the bear market in gold and gold shares ended in the year 2000.
At that time, Iraq or the invasion of this country by US and British armies was no topic.
Whatever happens in the region over the coming few weeks, it will not alter the fundamental arguments for owning gold.
Long-term, we doubt that the Americans will be able to the stabilize the region, as they will be considered ENEMY NO. 1 by the Islamic fundamentalists.
The Palestinian question will not come any closer to a solution.
Economically, the imbalances in the US economy will become worse as the trade deficit continues to soar, money supply increases to unknown levels and foreigners lose faith in the once mighty US dollar.
The following recommendations were valid at the time of writing, viz. at
and may no longer be pertinent when you read them.
Peter Zihlmann
March 14, 2003
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