Precious Metals Investments | Indices

The commodity sector can be divided in two different types of indices. First there are indices on commodities (metals,energy,etc.) and secondly indices on companies which produce commodities (e.g. mining companies).

Probably the most famous and oldest commodity index is the CRB-Future Index (Commodity Research Bureau). This indice was implemented in 1956 and consists of 17 equally balanced commodities (energy, wheat, industrial goods, meat, precious metals, etc.), which all become traded on US Stock Exchanges. The main difference in comparison to the GSCI-Index certainly is that the single Futures don't get weighted as components of the index.
Furthermore a daily spot-priceindex gets calculated by the Commodity Research Bureau. Currently this spot-priceindex contains 22 commodities which do not all get traded on the stock exchange.
Futures on the CRB Index get traded on New York Stock Exchange (fully owned subsidiary of the New York Cotton Exchange) since 1986 and options on Futures get traded since october 1988.

In 1991 Goldman Sachs developed the Goldman Sachs Commodity Index, brief GSCI-Index, which became recalculated till the year 1970 on a basis of historical index- stream of data.
This index depicts investment earnings of currently 25 liquidly tradeable commodities and raw ingredients from the industrial metals- , precious metals- , energy- , agriculture and livestock raising domain corresponding to their worldwide-production-weight.
The GSCI is, unlike other indices, a pure Futures Index, which means that it is just made up of Futures prices of the commodities.
Future Trading takes place on Mercantile Exchange in Chicago. (option on the Future as well)

The youngest commodity index is called Dow Jones-AIG Commodity Index, brief DJ-AIG Index, which checks the weighting of the respective commodity solely following the actual economic significance of the commodity within global economy (contrary to the two other indices).
The significance is determined on the basis of current output figures as well as of numbers of trading activities.
At the beginning of the year the index undergoes a scrutiny and gets a reorientation, if necessary.
The index contains 20 commodities from the precious metals- ,industrial metals- ,energy- and basic food sector. Following regulations apply to that: No group shall be weighted with more than 33% and every single commodity must be weighted with at least 2%. The Dow Jones & Company and the AIG Trading Group are the ones responsible for the adherence to standards.

Note that you can select out of an even bigger number of indexes when it comes to indices on commodity producers. Countries as the United States (XAU- and HUI-Index), Canada (TSI), South Africa (JSE) and Australia created country-specific and transnational indices. Furthermore benchmark-orientated indices are used by leading investment houses.

The probably most noted Northamerican mining index is the Philadelphia Gold and Silver Index, better known as the "XAU-Index". This index contains 10 important hedged and unhedged gold- & silver producers and was firstly introduced in 1979, back then counting 100 points.
The XAU-Index makes an exception in the domain of mining indexes, because it is the only mining index with a tradeable Future. The Future gets traded with call- and put-options.

The AMEX Gold Bugs Index, briefXAU-Index, was implemented in 1996 counting 200 points, containing 12 gold mining companies which are all listed in New York. The AMEX Gold Bugs Index differs from the XAU-Index by its concentration on basically unhedged gold mining stocks. Hedging is a method which signifies that companies sell their future gold output at a fixed price in advance. That is why the American HUI-Index features only national entreprises and companies from abroad which have sold their gold output forward for less than two years.
However, the no-hedging policy influences the behavior of the index price as well, which brings better returns in comparison to the XAU-Index. The index gets adapted quarterly by the American Stock Exchange. The weighting differs from value to value.

Direct speculation on one of the named indices is only possible in the respective home country by use of Futures-Trading or through options.
By use of certificates on the HUI-Index (e.g. ABN Amro) and the DJ-AIG Index (e.g. Sal. Oppenheim) a trader can speculate on these indices in both directions (calls & puts).

Summary:

-indexes can be traded by use of certificates on certain indices
-Please take account of the Disclaimer, as with any other kind of investment/asset.