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 precious metals remains high.
On average, miners follow gold’s price direction almost 50% of the time. After the recent Fed meeting, precious metals were relieved, and so were mining stocks. The VanEck Vectors Junior Gold Miners ETF (GDXJ) rose about 1.7% on Monday after the disappointing economic numbers from the US.
The Brexit vote has been affecting miners, just as it has affected precious metals. The recent terrorist attacks in Europe, however, didn’t keep 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 saw positive days following the Brexit vote. However, the pace is now slowing down.
Royal Gold (RGLD), GoldCorp (GG), New Gold (NGD), and Newmont Mining (NEM) have risen 135.6%, 56.4%, 128%, and 145.5%, respectively, on a year-to-date basis. Safe-haven bids were the most important factors behind the rises in gold and gold miners.
The VanEck Vectors Junior Gold Miners ETF (GDXJ) rose 165.1% year-to-date. Due to mining stocks’ sudden substantial increases, many of them are trading close to or above their target prices. However, as the sentiment in precious metals remains positive, there could be further hope.
Royal Gold, GoldCorp, New Gold, and Newmont are trading at massive premiums of 37.5%, 1.7%, 24.5%, and 30.4%, 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 for 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 reading is close to 63.8.