Miners follow metals
Lately, the fear of the Fed increasing interest rates is playing solidly on precious metals as well as miners. Precious metal miners follow metals fairly closely. Miners are often known to amplify the returns of precious metals, as they take directional moves from these metals.
Because 2016 brought a positive sentiment for precious metals due to more safe-haven bids, miners recovered their 2015 losses. However, these metals have been pulled back, and the losses in mining stocks are once again amplified.
Yamana Gold (AUY), AngloGold Ashanti (AU), Hecla Mining (HL), and Kinross Gold (KGC) rose by 124.2%, 88.5%, 106.9%, and 132.4%, respectively, on a YTD (year-to-date) basis. Safe-haven bids on gold and silver contributed to the miners’ rally in 2016. All four of the aforementioned miners also saw heavy losses on Friday due the US dollar’s strength and the looming fear of a hike.
The VanEck Junior Gold Miners ETF (GDXJ) has risen by 71.2% YTD. Due to the sudden substantial increase in prices for these miners, many of them are trading above their target prices. However, Yamana, AngloGold, and Kinross are still trading below their target prices, suggesting an upward price reversal.
Yamana, AngloGold, Hecla, and Kinross are trading at premiums of 30.3%, 7.1%, 35.3%, and 24.8%, respectively, to their 100-day moving averages. Also, The VanEck Junior Gold Miners ETF (GDXJ) is trading at a premium of 17.9% to its 100-day moving average. Such a massive premium over the trading price might suggest a possible pullback in the future.
The RSI (relative strength index) readings for the aforementioned four miners, as well as most other miners, have fallen considerably, like the price of gold. An RSI level above 70 indicates that a stock has been overbought and could see a downward revision. An RSI level below 30 indicates that a stock has been oversold and could see an upward revision. GDX’s RSI is 43. Many miners have recently maintained an RSI level close to 40.