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Analyzing the Performance of Miners in 2016

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Jul. 28 2016, Published 12:02 p.m. ET

Miners are following gold

Most mining companies reversed their 2015 losses during the first few months of 2016, posting substantial gains. The correlation between mining stocks and precious metals remains high. On average, miners follow gold’s price direction almost 50% of the time. 

The recent Brexit vote has been affecting miners just as it has affected precious metals. Recent terrorist attacks in  Europe, however, couldn’t hold gold higher for long.

Both gold and silver rose recently to two-year highs due to additional safe-haven bids in the wake of global turmoil. Most mining shares had positive days following the Brexit vote. This pace is now slowing down. 

Sibanye Gold (SBGL), Gold Fields (GFI), Agnico-Eagle Mines (AEM), and Silver Wheaton (SLW) have risen by 194.4%, 109.8%, 100.6%, and 107.8%%, respectively, on a YTD (year-to-date) basis. Safe-haven bids have been the most important factors behind the rises in gold and gold-mining companies.

The VanEck Vectors Junior Gold Miners ETF (GDXJ) has risen by 136.1% YTD. Due to mining stocks’ sudden substantial rises, many of them are trading close to or above their target prices. Hecla Mining is one example of a company that’s trading higher than its target price. 

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Technical indicators

Sibanye, Gold Fields, Agnico Eagle, and Silver Wheaton are trading at massive premiums of 26.1%, 32.6%, 16.4%, and 29%, respectively, to their 100-day moving averages. Remember, a huge premium over a trading price suggests a possible fall in price.

The RSI (relative strength index) readings for miners are falling, as are those of precious metals. 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 reading is close to 51.5.

In the final part of this series, we’ll discuss the correlation between major miners and gold.

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