Gold Bugs Index HUI / Gold Ratio
BUGS is an acronym for Basket of Unhedged Gold Stocks. The HUI index was introduced on March 15, 1996 with a starting value of 200.
Eric Hommelberg of golddrivers.com has written a report on the ratio between the HUI and gold. He says that the Gold/HUI ratio has proven to be a reliable indicator for picking HUI bottoms.
Eric says that the current gold/HUI ratio points to extreme undervaluation of Gold shares compared to the gold price and that extreme undervaluation such as we have now never persists for a long period of time. He says that undervaluation will morph itself into overvaluation over time.
Eric says that if the gold/HUI ratio predicts a bottom in gold stocks (which he says it is doing now) and the price of gold is in an uptrend, then a powerful rally could emerge in gold stocks. On previous occasions when the gold/HUI ratio has predicted a bottom in gold stocks and the price of gold has been heading north it has led to HUI rallies of at least 50% in only a few months.
Eric says that this gold stock rali is supported by the gold price being in a classic triangle pattern which has to break out soon and if its to the up side of its current triangle pattern, it could lead to a powerful gold price rally with a price projection of $470 - $480.