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Miners Keep Falling: What Do Technical Indicators Show?

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Aug. 29 2016, Published 11:01 a.m. ET

Mining shares fall

Most mining companies reversed their 2015 losses during the first few months of 2016 and posted substantial gains. There’s a high correlation between mining stocks and precious metals.

On average, mining companies follow the direction of gold prices about 50% of the time. After the meeting on Friday, precious metals and miners reacted differently.

Precious metals seem to have been settling lower due to the fears of a sooner-than-expected interest rate hike. Miners are also expected to suffer due to falling precious metal prices.

The above mining companies such as Alamos Gold (AGI), First Majestic Silver (AG), and New Gold (NGD) saw a loss of 0.39%, 2.2%, and 2.3%, respectively. However, Royal Gold (RGLD) rose marginally by 0.22%.

These four companies have seen a YTD rise of 132.5%, 303.4%, 108.1%, and 115.5%, respectively. The VanEck Vectors Gold Miners ETF (GDXJ) also saw a substantial YTD rise of 135%.

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Technical indicators

Most miners are now trading closer to their 100-day moving averages in contrast to the previous huge discounts to their 100-day moving averages. A huge premium over a trading price suggests a possible fall in the price, while discounts could indicate a rise. Alamos Gold is below is 100-day moving average.

However, all of the above four miners are trading lower than analysts’ target prices. This suggests a pull in the price.

The RSI (relative strength index) readings for mining companies and precious metals are falling. On August 26, 2016, the VanEck Vectors Junior Gold Miners ETF’s (GDXJ) RSI was close to 49. Most miners are closer to the 30 mark.

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