Analyzing the Volatility of Mining Stocks
Precious metal funds
Precious metal mining stocks are known to closely track the performances of precious metals. The leveraged mining funds like the Direxion Daily Gold Miners (NUGT) and the ProShares Ultra Gold (AGQ) have risen due to the recent revival of precious metals. Mining stocks are often more volatile than precious metals.
Monitoring the implied volatilities of large mining stocks is important. We should also watch their RSI (relative strength index) levels, particularly in the wake of changing precious metal prices. In this part of the series, we’ll look at Silver Wheaton (SLW), Coeur Mining (CDE), Eldorado Gold (EGO), and Alacer Gold (ASR).
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Call-implied volatility takes into account the changes in an asset’s price due to variations in the price of its call option. During times of global and economic turbulence, volatility is higher than in a stagnant economy.
As of the last trading day of February, the volatilities of Silver Wheaton, Coeur Mining, Eldorado Gold, and Alacer Gold were 40.5%, 57.3%, 49.9%, and 48.4%, respectively. The volatilities of mining companies are often higher than the volatilities of precious metals.
A 14-day RSI above 70 indicates the possibility of a downward movement in a stock’s price. A level below 30 shows the possibility of an upward movement in price. The RSI levels of the four mining giants mentioned above have risen due to their rising stock prices.
Silver Wheaton, Coeur Mining, Eldorado Gold, and Alacer Gold have RSI levels of 30.7, 32.5, 31.9, and 39.8, respectively.