Donald Trump’s recent victory in the US presidential election initially resulted in fear among precious metals investors. As that fear subsided, precious metals and mining stocks slowly started falling. The Brexit vote in June 2016 also had a significant impact on mining companies and precious metals. Some investors expected choppy waters for precious metals miners after Trump’s victory, but that didn’t happen.
The US interest rate hike and any future hikes will likely have an adverse impact on precious metals. Typically, mining companies track gold and silver more closely than they follow other precious metals.
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Mining stocks such as Newmont Mining (NEM), Gold Fields (GFI), Agnico Eagle Mines (AEM), and Silver Wheaton (SLW) have seen considerable year-to-date (or YTD) gains. The Sprott Gold Miners ETF (SGDM) has also seen a substantial YTD rise. However, its returns have fallen sharply in the past few months.
Currently, most mining companies are trading below their 100-day moving averages. However, they were selling at discounts compared to their significant premiums a few months ago.
A substantial premium over a stock’s trading price suggests a potential fall in its price. A discount could indicate a rise in its price. The target prices for the above four mining companies are significantly higher than their current prices, suggesting a positive industry outlook.
That said, mining companies’ RSI (relative strength index) readings are falling, along with precious metals’ RSI levels. At the beginning of December, the RSI level for SGDM was close to 44.9. An RSI level of above 70 indicates that a stock has been overbought and could fall. An RSI level of below 30 indicates that a stock has been oversold and could rise.