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Why Miners Followed Gold’s Rebound

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Miners followed gold

As precious metals rebounded from the lows on August 9, miners also saw brighter days. 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—they posted substantial gains. The correlation between mining stocks and precious metals remains high. On Tuesday, precious metals and precious metal–based equities increased.

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Most mining shares rose Tuesday. New Gold (NGD), Newmont Mining (NEM), Sibanye Gold (SBGL), and Gold Fields (GFI) rose 1.1%, 0.79%, 1%, and 2.1%, respectively. These four stocks also have tremendous YTD (year-to-date) gains. They rose 144.8%, 150.1%, 228.9%, and 129.2%, respectively, on a YTD basis. Safe-haven bids were the most important factors behind the increases in gold and gold mining companies.

The VanEck Vectors Junior Gold Miners ETF (GDXJ) has a YTD gain of 164%. 

Technical indicators

New Gold, Newmont Mining, Sibanye Gold, and Gold Fields are trading at massive premiums of 30.3%, 28.7%, 36.1%, and 38%, respectively, to their 100-day moving averages. A huge premium over a trading price suggests a possible fall in the price.

The RSI (relative strength index) readings for miners and precious metals are falling. 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 60.

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

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