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Miners Followed the Metals South

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Aug. 23 2016, Published 3:32 p.m. ET

Miners’ mixed reaction

The precious metal mining companies take much of their direction from the precious metals themselves. A gloomy year for the metals results in gloomy balance sheets for these miners. Like precious metals, mining stocks have also been slowly falling over the past one month. 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 and posted substantial gains. 

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The correlation between mining stocks and precious metals remains high. Mining shares fell hard on Friday, August 19, with the decline in the precious metals. Gold Fields (GFI), Agnico-Eagle Mines (AEM), Randgold Resources (GOLD), and Pan American Silver (PAAS) all fell on Friday by approximately 0.78%, 2.8%, 1.4%, and 3.2%, respectively, on Friday.

GFI, AEM, GOLD, and PAAS, however, saw tremendous YTD (year-to-date) gains. They’ve increased 129.9%, 113.6%, 75.4%, and 219.5%, respectively, YTD. The 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 posted a YTD gain of 160.8%. 

Technical indicators

Gold Fields, Agnico Eagle, Randgold, and Pan America Silver are trading at massive premiums to their 100-day moving averages. A huge premium over a trading price suggests a possible fall in price. 

The RSI (relative strength index) levels for miners and precious metals are falling with its falling prices. 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 is close to 64.

Gold Fields, Agnico Eagle, Randgold, and Pan America Silver have RSI levels of 58.6, 47.6, 43.4, and 62.6, respectively.

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