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Miners Have Seen Tremendous YTD Gains: What’s Next?

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Aug. 22 2016, Published 6:01 p.m. ET

Miners have mixed reactions

Like precious metals, mining shares have also been slowly falling. 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. 

The correlation between mining stocks and precious metals remains high. The giant mining shares like Royal Gold (RGLD), Goldcorp (GG), New Gold (NGD), and Newmont Mining (NEM) have seen year-to-date gains of 131.3%, 61.7%, 148.7%, and 146.9%, respectively. 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 169.1%.

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Technical indicators

Royal Gold, Goldcorp, New Gold, and Newmont Mining 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 target price for these miners, except New Gold, is higher than their current prices, which suggests a potential rise. Thus, the signals seem mixed. 

The RSI (relative strength index) levels 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 is close to 61.

Royal Gold, Goldcorp, New Gold, and Newmont Mining have RSI levels of 59, 52.7, 65, and 58.9, respectively.

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