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How Closely Are Miners Tracking the Precious Metals?

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Miners followed gold

As the precious metals retreated on Friday after seeing gains over the past one week, the negative sentiment also affected the mining equities. On average, miners follow gold’s price direction almost 50% of the time. 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 Friday, precious metals slumped, and so did the precious-metal-based equities.

Most mining shares saw negative returns on Friday. Cia De Minas Buenaventura (BVN), Hecla Mining (HL), Kinross Gold (KGC), and Eldorado Gold (EGO) fell 2.7%, 1.7%, 4.2%, and 2.9%, respectively, on Friday.

However, these four stocks have risen 253.5%, 243.9%, 190.1%, and 34.3%, respectively, on a year-to-date basis. 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) also fell on Friday by 3.4% but has a year-to-date gain of 157.2%. 

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Technical indicators

Cia De Minas, Hecla, Kinross, and Eldorado are trading at massive premiums of 47.8%, 47.1%, and 11.9%, respectively, to their 100-day moving averages. However, Eldorado is at a discount of approximately 3.6% to its 100-day moving averages. 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 57.2.

In the final part of this series, we’ll look at the correlation of major miners to gold.

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