The HUI is the New Gold and Silver Spot Price, Spot Price is DEAD!

Silver Doctor

The spot price for gold and silver is dead.
We seem to have the makings of a major disconnect, and it is worth talking about:  the mining indexes are raging, while the spot price “markets” are looking more and more like the ugly step-sister nobody wants to dance with
Billions of dollars are flowing into gold and silver miners, yet all the while PM “price” continues to lag, largely because it is set by the traditional flawed paper derivative dinosaurs.  Regardless of how or why this is occurring (deliberate plan or free market), one thing seems evident:
HUI is the new Spot Price, and Spot Price is Dead!  

By Pining 4 the Fjords, TFmetals:

On Friday, I posted a comment that our friend TF suggested would make an interesting weekend thread for group discussion.  As a loyal soldier, I am hereby submitting the idea as a thread for scrutiny, discussion, scorn, etc.  This will be the extended version, with some extra stuff that Murphy (my pal and partner in fevered theorizing) and I have been throwing  back and forth, both here and outside SD.  In the immortal words of Hans and Franz, “Listen to me now, and hear me later”:

1.   I submit that spot price for gold and silver is dead.  The markets have left it dying and bleeding on the side of the highway like roadkill.  The actual value-setting mechanism for precious metals has become the mining indexes.  Spot price, as TF has argued for years now, only “prices” what people are willing to pay for the paper derivative that tries to masquerade as gold and silver.  It does not price actual gold and silver.

In the past, this might have been dismissed as just some semantic tic of goldbugs, but I argue that the markets… YES, THE BIG MONEY, INVESTING IN BILLIONS WITH A B, “WE ARE THE ONES WHO COUNT” MARKETS…  are proving that they too now understand this to be the case.  GLD in blue, HUI in green… Check it:

GLD is up 26% YTD.  Fine, that’s lovely.  But the HUI is up 144% !!  That is 5.5 times the rise in the so-called “price” in gold, a rise that is out of whack even given the “leaner miners, more profitable, etc etc” earnings potentials.  The share price rise is outstripping those things, and more importantly, share price rises during times when spot price stays flat!!!   Same with silver.

It has been fascinating to see capping, mini-beatdowns in spot price, and all increasingly ignored by big money… but they aren’t buying GLD (as if those tons are actually physically there) and they aren’t buying SLV.  They sure as hell aren’t standing for delivery on the Comex, which they know doesn’t have the metal to deliver.  Big money has become smart money, and is ignoring GLD, SLV, and Comex futures as flawed instruments!  No, those billions are flowing into the miners.  You can see it in the daily fluctuations as spot price gets knocked down, the miners dip briefly, then rise back up strongly.  Spot price stays tepid and weak, because nobody wants to put big money into those flawed instruments!

2.  On a daily basis, the HUI and other indexes trade like real things.  Part of the discussion Murphy and I have had is based just on the way these things have traded, vs spot price.  Admittedly, much of this is “feel” in a trading, chart watching sense of seeing the tick for tick stuff, but I suspect that the traders out there will know what I’m talking about.  I would be very interested in hearing from others, pro or con, on this.  But basically, here is what we are seeing: Spot gold and silver is doing the same old crap it always does, including the tricks to manipulate price that we are quite used to (i.e., spoofing bids to cap, large bunches of orders suddenly coming in out of nowhere to overwhelm the bid during globex trading to knock a cheap 4-8 dollars off gold, etc etc etc).  You guys know the drill, the stuff that has become old hat since the Blythe Masters days- we’ve all gotten so used to it, its just “how the metals trade” including how, as TF constantly points out, usually the biggest input moving gold price is the dollar/yen cross.

Now, have you ever sat back and really thought about how truly absurd it is that the best, most pure store of value on the planet- the golden monetary metal, something that a billion Chinese and a billion Indians (especially during wedding season) and at least another billion people all told worldwide all hold precious, something held and owned by literally every major and minor Central Bank on earth –  has its price usually set during daily trading by fluctuations between the dollar and the yen?  The Yen! A currency printed like napkins by a mad Keynesian Kamikazi Kuroda whose country has been working on a “lost decade” for 22 years now?  Whose aging population represents just 1.7% of the world ?  And THAT is the major trading input setting worldwide gold price on a daily and weekly basis?  Yup, thanks to the algos, the HFT inputs, and the deliberately directed leverage, that’s largely how we determine the global price of this:

But wait!  Over the last six months, and especially over the last three I think, what we have increasingly started seeing (not all the time, but more often) is that when stupid stuff happens to the gold and silver price, the HUI and other mining indexes shrug it off !  They are starting to trade like spot price would in a rational market!  THAT is the sense I’m trying to convey from a traders perspective-  it’s not that they never go down, its that when they go down it is for reasonable reasons, not fakey “PM market” reasons. Look at the difference between silver over the last seven weeks, and the silver mining index SIL over the last seven weeks.  Huge!  Trust me, its been even more fun watching on a daily basis!

More to the point, the big money behind the mining shares seems to have seen behind the curtain…   and the money is flowing rationally and moving markets.  That money isn’t flowing into GLD and SLV, AND its flowing into miners at times that occasionally have been quite at odds with the old “let’s be tricksy with spot price” regime.  It has been REALLY fun to watch.

3.   Is this real or just another tricksy trick?  There is another possible permutation for these observations that is worth noting and discussing, though admittedly this is not for the faint of heart!  Murph first pointed out to me months ago the strange juxtaposition of (a) the miners responding to every dip as strong as mustard gas, yet (b) short interest on the Comex growing and growing until it has reached epic proportions at times, though it has pulled back somewhat of late.  Still, this is a possible scenario.  As Murph recently said:

 Furthermore it seems to me and maybe P4 as well, that tptb are doing it as planned. Keeping the short contracts at ridiculous, high levels while at the same time buying up miners.

How can the miners make these giant gains if the metals price stays so much lower percentage wise? Easy peasy, the big boys don’t care. Some time in the future when they have enough longs in their dark pools they will cover their shorts and let the spot prices run. 

Thus you have what I call the “Murphy two-step”:  Spot price suppression through absurdly huge short interest (150% of total worldwide yearly mine supply in silver, at one point, for the Comex alone… a single exchange leveraged something like 300 to one, paper to actual physical if memory serves) while gobbling up mining shares, then watch the magic of leverage work in your favor when those shorts are covered, price is allowed to run, and whatever losses are incurred are repaid ten-fold by the rise in your now massive mining stock positions!   Tinfoil hat? Yeah, probably.  I’m sure that powerful interests with the means, the motive, the opportunity, and the “get out of jail free” cards that come with certain connections wouldn’t dream, in an era of zero interest rates and scarce yield, of creating a quarter-trillion dollar ten-bagger for themselves.  Naw, that would be illegal.

Regardless,  what we DO have is the makings of a major disconnect, as billions of dollars (like the Swiss National Bank, etc) are choosing to invest in gold and silver miners, all the while “price” continues to be set by the traditional flawed paper derivative dinosaurs.  No matter what the mechanism or the degree of planning (conspiracy or free market), one thing seems to be certain:  HUI is the new Spot Price.

Silver Doctors

5 thoughts on “The HUI is the New Gold and Silver Spot Price, Spot Price is DEAD!

  1. So what is the HUI?

    From Google:

    What is the HUI index?
    The NYSE Arca Gold BUGS Index is a modified equal dollar weighted index of companies involved in gold mining. BUGS stands for Basket of Unhedged Gold Stocks. It is also referred to by its ticker symbol “HUI”.

    1. HUI Gold Index
      From Wikipedia, the free encyclopedia
      The NYSE Arca Gold BUGS Index is a modified equal dollar weighted index of companies involved in gold mining. BUGS stands for Basket of Unhedged Gold Stocks. It is also referred to by its ticker symbol “HUI”. The HUI Index and Philadelphia Gold and Silver Index (XAU) are the two most watched gold indices on the market. The main difference between them is that the HUI Index takes into account only gold mining stocks whereas the XAU Index includes both gold and silver producers.[1] The Gold BUGS Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years. The HUI Index was developed with a base value of 200.00 as of March 15, 1996. The AMEX Gold BUGS Index currently consists of 15 of the largest and most widely held public gold production companies.[2] Since bottoming in late 2000, HUI went on to be the top-performing US stock sector of the decade, rising by about 1600%.[3]

  2. aha…. JoeSTP and DL. looked it up, and I believe that was the author’s motive behind using those unknown initials. He generated interest in the HUI by introducing it as a curiosity. We’ve all been reading financial news for years without the “HUI” ever being mentioned (I’ve certainly never heard of it before this article), and I believe it was dropped in here to induce people to read about it.

    As for the difference between real and paper gold, we’ve known that for years, but over the past week I’ve seen a lot of articles about rich people sinking their money into gold, and I believe they’re re-igniting interest in the noble metal to create demand for the Chinks’ gold-backed currency, which will probably be unleashed here when the dollar finally collapses.

    That will cement communist rule over this country. There are more Chinks moving into this country than wetbacks, they own tons of real estate, we owe them 2 trillion, and when we’re forced to use their money, you may as well get used to eating with chop sticks.

    And NO, they’re not “Chinese-Americans”, and it should be illegal to use “American” anywhere near their description, because they’re only here as an invading, and eventually conquering army, and that reduces them to “Chinks”….. or “slant-eyed gook bastards” if you want to get technical.

    1. If you are speaking about me you are In Error, as my original email to FTT / Laura did include the following that was not included in the article:
      The AMEX Gold BUGS(Basket of Unhedged Gold Stocks)Index represents a portfolio of major gold mining companies.The Index is designed to give investors significant exposure to near term movements in gold prices – by including companies that do not hedge their gold production beyond 1 1/2 years.

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