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Guess Which Index Rallied 65% at Trader’s Narrative

Guess Which Index Rallied 65%

Here’s a chart of an index of stocks which recently rallied more than 65%. Can you guess which one it is?

guess which index rallied 65 percent

For the answer keep reading…

gold bugs HUI index december 2008 rally

Here is what I wrote, a few weeks ago, when I taunted the gold bugs, asking “Where is your golden idol now?

Gold Bugs Index (HUI) has strong support at 175, which would mean the k-ratio to the low 0.20’s and once again, it could set up as a buying opportunity.

That turned out to be a pretty good call, all in all. To be honest though, I didn’t expect such a bombastic rally. Just that the relentless selling would be met with some meaningful support.

By the way, am I being too harsh on the gold bugs? you know, those who believe gold will go to a bajillion dollars and we’ll have to use it for legal tender in some post-apocalyptic “Mad Max” scenario. After all, if gold tops out and craters with the rest of commodities, in the face of one of the most ruthless bear markets and more importantly, in the face of perhaps the harshest global credit and financial crisis we’ve ever faced, when exactly will it rally?

Anyway, I’m sure that folks like Jim Sinclair will come up with some rationale and continue on with the same mindset. It is probably the fault of “manipulators” - just like the stock market is manipulated by the PPT (which by the way, is doing an amazingly atrocious job right now).

Interestingly enough, within the same time period physical gold rallied only 18%, going from a low of $700 per oz. to a high of $825. The previous counter rally in September was a respectable 40% but still a baby compared to this one. I guess my point is that gold and gold stocks are like everything else, supposed to be borrowed for a trade, not married for life. And a good gauge is the trusty k-ratio.

Here are the stocks that make up the Gold Bugs Index (HUI) which their individual weight:

  • Barrick Gold ABX 16.76%
  • Goldcorp Inc GG 16.10%
  • Newmont Mining NEM 10.41%
  • Harmony Gold Mining Adr HMY 6.78%
  • Gold Fields Ltd Adr GFI 6.76%
  • Kinross Gold KGC 6.43%
  • Randgold Resources Ads GOLD 6.07%
  • Eldorado Gold Corp EGO 5.52%
  • Iamgoldcorp IAG 5.41%
  • Comp de Minas Buenaventura Ads BVN 4.75%
  • Yamana Gold AUY 4.01%
  • Agnico Eagle Mines AEM 3.73%
  • Hecla Mining HL 2.59%
  • Golden Star Resources GSS 2.38%
  • Coeur d’alene Mines CDE 2.31%

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6 Responses to “Guess Which Index Rallied 65%”  

  1. 1 VennData

    The goldbugs will not rest until they’ve rid us of central banking and forced all currencies onto their “Bling Standard.” Gold… it’s bling.

  2. 2 p.wallis

    Your last article described .80 on the K ratio as “unbelivable value” how does that compare to today. .03 ?

  3. 3 Babak

    p.wallis, can you point me to the actual page? I can’t find the quote you provided.

  4. 4 diego joachin

    gold is across the trading blogs.
    All the comments are fundamental-bullish arguments.

    My spec is that gold (ETFs and derivatives) are being used for hedging long physical. I mean like putting longs of gold stocks and hedge them with ultra shorts like DZZ. That’s putting tons of ask orders on any kind of gold derivative which graphically we see a 2008 down trend at gold.

    cash and not “paper” gold is being the true safe heaven.

  5. 5 p.wallis

    Babak Here is the page thanks.

  6. 6 Babak

    pwallis, ah, ok. Here’s the explanation: the reference to 0.80 is to the k-ratio as calculated by dividing Barron’s GMI by the Handy Harmon price of gold. This is the original formula by Kaeppel. While I guesstimate this ratio by using the HUI index divided by the futures price of gold. That’s where the confusion comes from! Thanks for pointing it out, I’ll try to be clearer in the future to avoid further confusion.

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