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Precious Metals Tanked on May 1, and Here's Why

PART:
1 2 3 4 5
Part 4
Precious Metals Tanked on May 1, and Here's Why PART 4 OF 5

Where Mining Volatility Stands Now

Mining stock technicals

There are a few technical indicators we have to consider when analyzing the performance of mining stocks. The direction that these technical numbers follow can be useful in determining potential price changes in an asset.

While there are many important indicators that an analyst can monitor, we’ll focus here on the 14-day RSI (relative strength index) scores and implied volatility.

Where Mining Volatility Stands Now

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Among the precious metal mining funds, the Sprott Gold Miners ETF (SGDM) and the SPDR S&P Metals and Mining ETF (XME) have dropped 5.7% and 2.7%, respectively, on a five-day trailing basis.

As shown in the chart above, mining stocks have also seen significant trailing-30-day drops in prices due to the fall in precious metal prices.

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 typically rises.

On May 1, 2017, the implied volatilities of Royal Gold (RGLD), Goldcorp (GG), New Gold (NGD), and Gold Fields (GFI) stood at 31.9%, 31.3%, 51.4%, and 54.7%, respectively. Notably, mining companies’ volatilities are often higher than precious metals’ volatilities.

RSI scores

A 14-day RSI score above 70 suggests that a stock price may fall, whereas a score below 30 suggests that a stock price may rise. The RSI levels of the four mining giants mentioned above have all increased due to their higher stock prices.

Royal Gold, Goldcorp, New Gold, and Gold Fields have RSI scores of 37.4, 32.3, 37.3, and 30.9, respectively. Notably, these RSI scores have fallen along with the respective companies’ stock prices.

Continue to the next and final part of this series for an analysis of recent mining share movements.

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