Gold Not so Solid: Gauging the Impact of the Latest News

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Part 4
Gold Not so Solid: Gauging the Impact of the Latest News PART 4 OF 5

Reading Mining Stock Volatility Prior to the Fed’s Rate Hike Decision

Precious metal funds and shares

Before the Fed’s decision to hike the interest rate on March 15, the Vaneck Vectors Junior Gold Miners (GDXJ) and the iShares MSCI Global Gold Min (RING) had risen substantially on a YTD (year-to-date) basis due to the recent revival in precious metals. However, of late, both metal funds and mining shares have suffered.

In times like these, monitoring the implied volatilities of large mining stocks is all the more important. We should also watch their RSI (relative strength index) levels, particularly in the wake of changing precious metal prices.

Reading Mining Stock Volatility Prior to the Fed&#8217;s Rate Hike Decision

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Implied volatility

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.

At the same time, the volatilities of mining companies are often higher than the volatilities of precious metals. As of March 13, the volatilities of Coeur Mining (CDE), Barrick Gold (ABX), Cia De Minas Buenaventura (BVN), and AngloGold Ashanti (AU) were 61%, 38.7%, 48.5%, and 51.3%, respectively.

RSI levels

As we discussed in the preceding part of this series, a 14-day RSI above 70 indicates the possibility of a downward movement in a stock’s price, whereas 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. Meanwhile, most mining shares witnessed a rebound in their price during the past week.

Specifically, Coeur Mining, Barrick, Cia De Minas, and AngloGold have RSI levels of 25.1, 27.6, 34.7, and 13, respectively.

Continue to the next and final part of this series for a closer look at mining companies’ correlation trends.


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