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Gold’s at a 4-Week Low: What’s Next?

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Precious metals tumble

Precious metals fell for yet another day on August 25, 2016, after seeing two straight days of falls. Gold touched a four-week low of $1,321 on the day, closing at $1,324.6 per ounce.

Gold futures for December expiration are the most actively traded contracts, and their call-implied volatility fell to ~16.1 on the day. Call-implied volatility measures changes in the price of an asset with respect to variations in the price of the asset’s call option.

Alongside the fall in gold, silver and platinum also fell by 0.36% and 0.48%, respectively, closing at $18.6 and $1,077. Palladium, however, rose marginally by 0.37% and ended the day at $687.4.

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RSI

The RSI (relative strength index) levels for these four metals have been drastically falling along with their falls in price. The RSI levels for gold, silver, platinum, and palladium are 37.4, 29.7, 37.4, and 51.3, respectively. These levels were substantially higher at the beginning of August.

An RSI level of above 70 indicates that a stock has been overbought and could fall, while an RSI level of below 30 indicates that a stock has been oversold and could rise. Accordingly, silver may soon be a candidate for an upward price correction, as its RSI level is below 30. 

Miners shone

Though precious metals saw a down day on Thursday, many mining companies saw up days, reversing their previous days’ massive losses. The mining shares that saw the highest gains on August 25 included Alacer Gold (ASR), B2Gold (BTG), and Harmony Gold (HMY). These three companies rose by 5%, 5.3%, and 5.7%, respectively. Together, the three stocks make up 3.3% of the fluctuations in the VanEck Vectors Gold Miners ETF (GDX).

The mining funds that rose along with mining shares included the Sprott Gold Miners ETF (SGDM) and the iShares MSCI Global Gold Miners ETF (RING). These two funds rose by 1.5% and 0.88%, respectively.

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