Mining sector amplifies losses
The rout in precious metals prices has extended to precious metals mining companies. As gold and silver lost 7.9% and 10.9%, respectively, on a 30-day-trailing basis, mining ETF indicators also slipped. The VanEck Vectors Gold Miners ETF (GDX) fell 19.3% on the same basis.
Losses in the mining sectors have amplified the losses in gold. GDX comprises mining stocks such as AngloGold Ashanti (AU), Randgold Resources (GOLD), Eldorado Gold (EGO), Kinross Gold (KGC), and Hecla Mining Company (HL). Together, these four stocks make up almost 13% of GDX.
Above is a comparative price performance of GDX with the above-mentioned four mining companies.
Trading below 100- and 50-day moving averages
Kinross Gold, Eldorado, Hecla Mining, and AngloGold Ashanti are currently trading at discounts of 7.5%, 11%, 13%, and 15%, respectively, to their 100-day moving average prices. The prices are also way below their 50- and 20-day moving averages.
Among these four miners, Hecla Mining is the best-performing asset on a year-to-date (or YTD) basis, as it has fallen only 25% compared to 32%, 38%, and 53% falls for AngloGold, Kinross, and Eldorado Gold, respectively. GDX itself has fallen almost 32% on a YTD basis as gold has fallen 9.8% and silver has fallen 10.3%.
Relative strength index
An important technical indicator is the relative strength index (or RSI) of the precious metals. Gold, silver, platinum, and palladium are currently trading at RSIs of 27.6, 24.8, 28.1, and 29.5, respectively. This indicates that there may be some level of undervaluation in these assets and that a pullback may be around the corner.
The RSI compares the magnitude of recent gains to recent losses in an attempt to determine the overbought and oversold conditions of an asset. As RSI approaches the 70 level, it means that an asset may be getting overvalued and is a good candidate for a fall in price. Likewise, if the RSI approaches the 30 level, it’s an indication that an asset may be getting oversold and is likely to become undervalued.