Gold and mining companies
In the gold and silver rally of 1Q16, mining companies shed their 2015 losses and made substantial gains. But the correlation between mining stocks and gold remains high. As gold fell during the week ending May 27, mining companies took a fall, but Wednesday, May 25 was an exception—mining companies buoyed despite losses in precious metals.
First Majestic Silver (AG), Sibanye Gold (SBGL), Gold Fields (GFI), and Agnico-Eagle Mines (AEM) rose by 237%, 95.6%, 30%, and 70.6%, respectively, on a YTD (year-to-date) basis. A crucial contributor to the 2016 rally among mining companies has been the safe-haven bids on gold and silver.
The VanEck Vectors Junior Gold Miners ETF (GDXJ) has risen 81.4% YTD. Due to the sudden substantial increase in prices for mining companies, many were either trading close to or below their target prices. Sibanye, Gold Fields, and Agnico are trading below their target prices, which suggests a possible rise in price.
Sibanye and Gold Fields are trading at discounts of 5.4% and 8.1% to their 100-day moving averages. Massive premiums over the trading price might suggest a possible pullback in price, whereas huge discounts could indicate a potential rise.
The RSI (relative strength index) readings for these four miners and most other miners have fallen considerably with the fall in the price of gold. An RSI level above 70 indicates that a stock has been overbought and could see a downward revision. An RSI below 30 indicates that a stock has been oversold and could see an upward revision. Notably, GDXJ’s RSI is 48.