Miners’ performance in 2016
Mining stocks are often known to amplify the returns of precious metal stocks. Small losses for metals can bring exponential losses to metal miners, and vice versa.
The overall performance of gold in 1Q16 was remarkably positive. Gold claimed its highest quarterly return in almost three decades. Silver has outperformed gold over the past month. Gold and silver have risen 21% and 25.2%, respectively, since the beginning of the year.
The initial gains in the precious metals helped mining companies recover the losses they experienced in 2015. Let’s look at the performances of significant gold and silver miners in 2016.
Gold and silver miners Newmont Mining (NEM), Sibanye Gold (SBGL), Agnico Eagle Mines (AEM), and AngloGold Ashanti (AU) have risen 88.1%, 136.8%, 73.9%, and 117.9%, respectively, on a YTD (year-to-date) basis. The most crucial contributors to the miners’ rally in 2016 have been safe-haven bids.
Even the VanEck Vectors Junior Gold Miners ETF (GDXJ) has risen 91.7% YTD. With such a sudden surge in metals and miners, the current prices for all of these miners are considerably higher than gold’s respective best target price. This suggests a possible pullback. If the gains aren’t fundamentally sound, a quick reversal of profits is possible. However, among these four miners, only Sibanye Gold is trading below its target price.
Newmont Mining, Sibanye Gold, Agnico Eagle Mines, and AngloGold Ashanti are trading at premiums of 40.7%, 26.4%, 35.8%, and 38.7%, respectively, to their 100-day moving averages. GDXJ is also trading at a premium of 47.9% to its 100-day moving average. These miners’ prices are also significantly above their 20-day moving averages. Such great premiums over the long- and short-term averages suggest a possible pullback.
The RSI (relative strength index) readings for Newmont Mining, Sibanye Gold, Agnico Eagle Mines, and AngloGold Ashanti are 67, 47.7, 68.9, and 57.3, respectively. An RSI level above 70 indicates that a stock has been overbought and might see a downward revision. A level below 30 indicates that a stock has been oversold and might see an upward revision. GDXJ’s RSI is 65.5.
In the next part of this series, we’ll look at gold’s relationship to the US dollar.