The New Gold Index (26 Gold Stocks) Component Charts XAU components: Philadelphia Exchange HUI components: AMEX exchange Please visit our new page: Inside the Semiconductor index (SOX)

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11/6/06 updated information

3/5/07 updated information. Changed index from 25 stocks to 26 stocks.

Currently there exists several Gold Indices. The two most widely known are the Philadelphia's Gold & Silver Index (XAU - most recent change to components: 2/28/07) and the AMEX's Gold Bug's Index (HUI - most recent change to components: 9/18/06). The XAU is a capitalization weighted index.and the HUI is an modified equal dollar weighted index. The XAU was started on January 1979 with a value of 100 and the HUI was started on March 15,1996 with a value of 200. These indices by themselves do not have many components and only represent a few companies in the Gold sector of the Stock Market. HUI contains 15 stocks and XAU contains 16 stocks. These indices not only differ in the number of stocks they represent but also in the proportion of hedged and unhedged stocks that they contain and in the way they are calculated. If we had a an index that combines these two indices we could get a better representative sample of the Gold sector and better represent the proportion of hedging and its influence within the sector. Here is the listing of the XAU and HUI component stocks plus one additional stock not used in either index:

(For current XAU and HUI listings along with each stock's weighting in the index, click on these links Philadelphia Exchange and the AMEX exchange .)

AMEX HUI index was substantially changed on 6/23/03 from 12 stocks to 15 stocks. Five changes were made composing of four additions and one deletion (12 original minus FCX_pc plus four new stocks: BGO, AEM, IAG, GOLD). PHLX XAU was substantially changed on 8/18/03 from 11 stocks to 12. Three changes were made composing of one deletetion (SIL) and two additions (KGC, DROOY).

For a link to all of the index's component charts, click on this link: Gold Charts. Note that Yahoo provides a volume for the XAU but it is wrong. It represents the Philadelphia Exchange's total daily volume instead of the XAU's. Please express your concerns to Yahoo regarding this error.

Please note that the New Gold Index was composed in 2002 and that the HUI just recently was changed from 12 stocks to 15 components. AMEX added 2 new stocks that began trading in Dec. 2002 or Jan. 2003. These two new stocks (IAG, GOLD) are not included in the New Gold Index at this time.

What I have done is combined these two indices into one larger index. This New Gold Index consists of 26 stocks which represents a larger proportion of Gold stocks. I have taken 18 unique stocks from both indices and added one stock that is not in either index. This New Gold Index is not a weighted index as are the others. It doesn't factor in the stocks market capitalization or size. It is simply an arithmetic sum of all of the component stocks. So if all of the stocks rise then the index rises. Each stock is as important the next. For comparison I have included charts of the XAU and HUI so you can view all three indices together.

In addition, I calculated daily volumes for all three indices. This is something that you will not find elsewhere on the web. The volumes are simply the sum of the indices component stocks daily volume. However, I have created an additional volume chart for the New Gold Index. This is the percent daily volume chart. Unlike most percent charts, this one doesn't simply show the percent difference in total volume from one day to the next. But rather this percent daily volume chart represents the sum of the percent changes of each of the 26 stocks. So a value of 26 would be the equivalent of no change in percent terms from yesterday of each of the 26 stocks. Of course you could have a day when all 26 stocks have daily volumes the same as the previous trading day or it could be that some of the stocks had greater volume while others didn't and the sum of the 26 changes was the net effect of no change - 26. The reason for this is so that all of the stocks have equal weighting and so that the high volume stocks daily changes of millions of shares doesn't overshadow the smaller companies volume changes. Each company in the index is worth 1/26 of the changes in price and in volume. What's important to understand is that the percentage change is not calculated from the cumulative total of 26 gold stock's volume but rather from the individual gold stocks daily percent change in volume. That's why there are two volume figures: raw and percent.

I have created this New Gold Index which is strictly a logarithmic sum of the closing prices of these 19 stocks plus one additional stock CEF (Canada Central Fund, AMEX traded Canadian ADR) a total of 26 stocks. The reason for including CEF was due to the fact that this stock is essentially a pure play on precious metals since this company keeps 90% of its assets in Gold and Silver. If an investor wished to own physical gold and silver; this stock is the next best thing without holding it in your hands. In addition, I felt that one stock in the new index should represent the actual price of precious metals. Please take note that CEF is an ADR. This means that if you trade this stock you will have an additional risk factor. This risk lies with fluctuations in the Canadian Dollar or currency risk. So be aware that the price of this stock can change with regards to the companies fundamentals and/or with currency changes. And while CEF is a Canadian Fund, DROOY is a South African company whose shares are traded on NASDAQ. Unlike CEF, which holds bullion grade Silver and Gold, DROOY is an unhedged mining company.

To understand the New Gold Index better, you should know that I took the logarithmic value of each of the stocks prices and added those together. This has the advantage of equalizing the effect of each stock's price movement. For example if one stock were to gain $3 in one day that would represent a 10% move on a $30 stock but a 100% move on a $3 stock. Logarithms compensate for this difference and it would be like adding the percent changes in the stock's price movement which equalizes stocks of different prices. The higher priced stocks tend to have greater price movements and their price movements would overshadow the lower priced stocks thereby unfairly weighting the stocks to the higher priced ones.

Another advantage for using logarithms is so that you can quickly calculate the percent change between any two dates. Just simply divide the first price by the second price and you'll get the percent change. So by using logarithms you can't know the actual dollar change from day to day. It really is a percent change that you are observing when the New Gold Index's value changes. Again, actual dollar changes can not be calculated. So if the index was 18 twenty days ago and is 19 today, the index changed 5.55% in 20 days. It did not change $1.

The last, benefit involves line fitting. For those of you not good at math, the logarithm scale converts an exponential curve into a straight line. So you can use these values to perform linear regressions which translate data into forumlas for drawing lines. This can also make it easier for you to simply draw trendlines.

Lastly, the stock AU is used in the XAU index and AU only started trading on 8/5/98. So my index starts with this date. Also if a stock split, I used the split adjusted data as of today. This eliminates the need to compute a divisor and to track its changes. Also note that this New Gold Index doesn’t track nor include dividends. It purely based on closing prices. So this New Gold Index does not display nor represent total returns for these stocks.

Please note to check the graphs' ranges. Lining up these graphs is difficult in this format due the varying graph widths. I simply cut and pasted to save time.

Below: This is the New Gold Index (26 stocks). It also is overlayed with a 4-day Simple Moving Average.

Below: This is the raw volume data for the New Gold Index.

Below: This is the percentage volume data for the New Gold Index.

Below: Graph of New Gold Index: Sum of 6 days percentage change.

The graph below is similar in concept to the 5 day ARMS. By summing all of the 26 stocks daily percentage moves, I am calculating something similar to the closing ARMs. Then I sum the past 6 days instead of 5 days. This is then the "moving sum" which changes daily. Each day new data is added and the oldest data is dropped off so that only 6 days of daily percent changes are in the sum. Then I calculate the 47 day moving average of these 6 day moving sums and create Bollinger Bands. These bands provide a statistical boundary which shows overbought and oversold conditions.

This graph is constructed using the following steps:

1. Sum 26 stocks daily percent changes

2. Calculate 6 day moving sum

3. Calculate 47 day simple moving average of 6 day moving sum

4. Calculate 47 day standard deviation of 6 day moving sum

5. Calculate +/- 2 standard deviation bands

Below: Graph of Daily percent changes for the New Gold Index.

Below: is a graph of the New Gold Index along with the number of Up/Down days in a 60 day period. This chart displays the New Gold Index along with net difference in the number of up/down days in a 60 day period. Using the Chi statistical test, any 60 day period which reaches the value of +16 or -16 indicates a non-random condition. A value +16 is associated with "bull" markets and a value of -16 is associated with "bear" markets. Notice that the current increase in gold stock prices during 2001-02 has not been confirmed with a +16 condition. This current "run" up in prices has statistically been the result of a random set of circumstances and helps to explain the failed double top in prices that occurred in January 2003. A non-random "bull" run would appear with higher highs and a +16 condition.

Below: Graphs of XAU with 4-day simple moving average and its component daily volume. There are four different representations of volume. For a detailed explanation of these four differerent methods please view our web page on XAU volume .

All volumes were recalculated using the new index components as of 8/18/03. The volumes on trading days prior to 8/18/03 also represent the total volume of all 12 component stocks despite the fact that they weren't in the index at that time. This decision was made so that total volume at highs and lows would represent the same companies and the number of them. In addition, the volumes based on the 11 component issues before 8/18/03 and the volumes based on the new index composition of 12 stocks created on 8/18/03 are displayed for comparison.

Interestingly, a critical interpretation hinges on the volumes made at the 8/19/03 and 8/20/03 highs and the interpretation of the volume at this juncture depends on how the volume figures are calculated. Aside from tabulating the volume yourself, which is what we do, the only known available source on the web for the daily XAU volume is from www.bloomberg.com . Bloomberg posts a total volume for the XAU but its definition is different than what investors expect. Bloomberg's total volume for the XAU represents only the trading volume of the component issues on the primary exchange during regular trading hours. This contrasts with their reporting of stock quotations, which represent the total trading volume from all exchanges in the US, which includes pre-market, RTH and after-session trading volume. This aggregate trading volume for stocks is different than what is used to calculate the XAU total volume. This means that technicians are liable to confuse investors because they quote volume figures that don't represent the same quantity. The confusion arises from the conflicting views that they see in their analysis and present to investors. Yet they wonder why the individual stocks depict one scenario and the index another.

Another source of confusion is when an index changes substantially. For example, the XAU index has grown from nine component issues to twelve since its inception and the index grew from 10 to 12 component issues since July 2002. As a curious coincidence, the June 2002 rally, which posted a high of 89.11, was made prior to the XAU increasing from 10 to 11 issues. Another rally, which peaked in June 2003, occurred when the HUI index increased the number of components from 12 to 15. And now, it appears that another rally has coincidentally materialized prior to the XAU increasing its component size from 11 to 12 stocks. There appears to be a strong correlation that these Gold indices rise prior to substantial changes. No further analysis is required. But you may ask what about the volume?

Volumes are generally updated daily and represent a sequence but there has been no discussion regarding the validity of this generally accepted view. If the index changes the volume is simply another entry in the series and no adjustments are made. The only problem is that nobody is asking is this valid? As previously mentioned index changes are associated with rising index prices, and the daily trading volume made commensurate moves. But where is the discussion that the volume increased due to an increase in the number of stocks included in the index? As you can see below, there are two XAU volume graphs that show how differently volume can be plotted. Notice how the higher high made on 8/19/03 and 8/20/03 was made with less volume than the highs of 8/8/03 and 8/9/03 when comparing the volume of the same 12 companies, but notice how the higher high made on 8/19/03 and 8/20/03 appears to made with greater volume when comparing the index high on 8/8/03 and 8/9/03 with 11 stocks to the higher high's volume on the 19th and 20th using the new index's 12 stock composition. Which are you to believe knowing that each view will lead you to the opposite conclusion?

Another facet of the gold market that causes more concern is with the supply of stock. Below is a table of shares outstanding in the XAU over the past year. It's another odd coincidence that when the supply of stock in the index increases prices rally. Economists should study this phenomenon since classic economics professes that if there is an increase in supply while demand is constant, prices should fall. Here it is documented that when the supply is anticipated to increase "Wall street" bids up prices.

Date	Shares Outstanding (in millions)	Gold Market Rally
5/2/02	2000
7/1/02	2619	X
11/12/02	2691	X
2/5/03	2715
3/25/03	2776
5/30/03	2776
6/25/03	2778	X
7/3/03	2778
8/5/03	2783
8/20/03	3254	X
Comments: Between May and July 2002, XAU added GFI which accounted for 469.6 Million new shares added to the index. Component stocks increased in number from 10 to 11. December 2002 rally accompanied new supply of stock. June 2003 HUI increased number of components from 12 to 15 stocks. XAU component shares were unaffected. August 2003 XAU increased number of component stocks from 11 to 12. DROOY and KGC added 499.2 Million new shares to the index. SIL 36.4 Million were deleted from the index. If the supply of new shares were to be removed and the total shares outstanding were based on the same 10 companies over the past 15 months the supply of stock rose from 2,000 Million shares to 2,321 Million. But the street reacted to the impact of the changes in supply rather than the actual true increase in supply. The changes caused 4 significant changes to the supply of stock included in the indices (HUI & XAU) and this sector rallied when the supply increased.

Now if a technical analyst were to look at only price and volume, the conclusion is that the increase in volume shows an increase in demand which is driving prices higher. But the analyst were to expand their database to include the timing of these index changes along with the impact of increasing the supply of stock then it would be hard for the analyst to arrive at the same conclusion. One could argue that the resulting bullish bias would be the same (buy increasing prices with increasing volume versus buy index changes or increases in stock supply), but the underlying premis of increased buying by investors is an illusion and misrepresents the true mechanism at work. The increased volume was demonstrated to be merely the result of increasing the number of stocks in the index rather than showing an increase in buying. As for supply, technical analysts generally don't analyze the supply side of the equation, because price is believed to be the current fulcrum of all factors known and unknown. Supply is considered irrelevant. But when this information is overlayed with price, an amazing coincidence emerges. So how can technical analysis lay claim to anticipating the future when the cause and effect are not known. In addition, how reliable can future predictions be if the true mechanism of the markets is not understood. If causality hasn't been established then how can one predict the future.

As it has been demonstrated, there are several correlations; 1.When the XAU index changes, prices rise; 2.When the XAU supply of stock increases prices rise; and of course 3. the technical analysts point of view that when volume increases making higher highs prices will rise. Which of these causes prices to rise? The presentation of these facts doesn't support a definitive conclusion, but these facts do serve to illustrate how easily it is to arrive at the wrong conclusion and potentially misinform clients.

These facts must be deseminated and debated before technical analysis can move forward as a science or an art form because correlations can easily be misinterpreted as causality. And if someone were to make this leap in logic then they would be wrong. Please review these facts and raise these concerns when discussing technical analysis with a friend, colleague, mentor, or professional. Perhaps then more accurate statements can be made regarding future correlations and predictive associations in the Gold market.

As a final thought, consider this. Regardless of whether one method is determined to be logical and correct, if the consensus ignores it, or the current level of knowledge doesn't mature nor advance, and the majority of investors continue to react to misinformation then when will new knowledge benefit the investor?

Below: Graphs of HUI with 4-day simple moving average and component daily raw volume. Volume was computed by summing the index's components daily volume.

modified 3/5/07, ©2003-2007, The Small Investors Software Co. All rights reserved.