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What Do Mining Companies’ Technicals Indicate?

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Miners followed gold

Most mining companies reversed their 2015 losses during the first few months of 2016, posting substantial gains. The correlation between mining stocks and gold remains high, and most companies surged following gains in gold.

June 24, 2016, remained of considerable importance as gold rose to a two-year high due to additional haven bids on the back of the Brexit referendum. Almost all mining shares saw up-days on June 24, but June 27 was comparatively slow.

Stocks such as Barrick Gold (ABX), Hecla Mining (HL), and Kinross Gold (KGC) have risen by ~186.1%, ~149.7% and ~82.9%, respectively, on a YTD (year-to-date) basis. Primero Mining (PPP) has fallen by 12.7% during the same timeframe.

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The VanEck Vectors Junior Gold Miners ETF (GDXJ) has also risen by 117.5% YTD. Due to the sudden substantial rises in mining stocks, many are trading close to or above their target prices. However, many miners are still below their target prices. Barrick Gold and Hecla are trading much higher than their target prices, suggesting possible downturns.

Technical indicators

Primero, Barrick, Hecla, and Kinross are trading at massive premiums of 11.2%, 32.4%, 37.6%, and 27.2%, respectively, to their 100-day moving averages. A huge premium over a trading price suggests a possible fall in price. Sibanye is trading below its 100-day moving average price.

The RSI (relative strength index) readings for these four miners and most other miners have fallen considerably. An RSI level of above 70 indicates that a stock has been overbought and could fall. An RSI level of below 30 indicates that a stock has been oversold and could rise. GDXJ’s RSI is close to 63.

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