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. The terrorist attack in Nice, France, however, couldn’t hold gold higher for long. The unrest in Turkey hasn’t helped gold, either.
Gold and silver both rose recently to two-year highs due to additional safe-haven bids in the wake of the global turmoil. Most mining shares had positive days following the Brexit vote.
Agnico-Eagle Mines (AEM), Silver Wheaton (SLW), and RandGold Resources (GOLD) have risen 102.5%, 110.4%, and 86%, respectively, on a YTD (year-to-date) basis. Primero Mining (PPP), however, has a YTD loss of 1.8%. Safe-haven bids were the most important factors behind the rises in gold and gold mining companies.
The VanEck Vectors Junior Gold Miners ETF (GDXJ) has risen 110.4% YTD. Due to mining stocks’ sudden substantial rises, many of them are trading close to or above their target prices. However, all four of the miners mentioned above are trading below their targets. This suggests a positive sentiment for them.
Agnico, Primero, Silver Wheaton, and RandGold are trading at massive premiums of 18.9%, 16.7%, 32.8%, and 20%, 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 above 70 indicates that a stock has been overbought and could fall. An RSI level below 30 indicates that a stock has been oversold and could rise. GDXJ’s RSI is close to 54.