Mining companies followed silver
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. Most mining stocks on Friday, July 8, 2016, followed the returns for platinum, palladium, and silver rather than gold. Although gold fell on Friday, most gold miners saw an up day, following other precious metals.
The recent Brexit scenario remained significant. Extended uncertainties after the Brexit vote made gold and silver buoyant. Both rose to a two-year high due to additional safe-haven bids in the wake of global turmoil. Most mining shares had up days after the Brexit referendum vote.
Stocks such as Iamgold (IAG), Agnico-Eagle Mines (AEM), Randgold Resources (GOLD), and Kinross Gold (KGC) rose 240.8%, 112.5%, 97.5%, and 203.8%, respectively, on a YTD (year-to-date) basis. Safe-haven bids have been the most important factor behind the rise in silver and silver mining companies.
The VanEck Vectors Gold Miners ETF (GDX) has risen by 122.6% YTD. Due to sudden substantial increases in mining stocks, many of them are trading close to or above their target prices. However, many miners such as Silver Wheaton are still below their target prices.
Iamgold, Agnico-Eagle Mines, Randgold Resources, and Kinross Gold are trading at massive premiums of 55.6%, 30.1%, 30.9%, and 29.5%, 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 these four mining companies and most other miners rose considerably due to the sudden increase in 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. GDX’s RSI is close to 70.2. Most of the miners have RSI levels above 70.