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 recent Federal Reserve meeting, precious metals and mining stocks were relieved.
The Brexit vote also affected mining companies just as it affected precious metals. Both gold and silver rose to two-year highs due to safe-haven bids in the wake of this global game-changer.
However, precious metals seem to have settled down a bit due to fears of a sooner-than-expected interest rate hike. Miners are also expected to suffer due to falling precious metals prices. However, they saw gains on August 25 despite the losses in precious metals.
Mining companies such as AngloGold Ashanti (AU), Hecla Mining (HL), Kinross Gold (KGC), and Eldorado Gold (EGO) have seen YTD (year-to-date) rises of 150.7%, 204.7%, 138.5%, and 20.2%, respectively. The VanEck Vectors Gold Miners ETF (GDXJ) also saw a substantial YTD rise of 137%.
Most miners are now trading closer to their 100-day moving averages in contrast to their previous huge discounts to their 100-day moving averages. A huge premium over a trading price suggests a possible fall in price, and discounts could indicate a rise.
The RSI (relative strength index) readings for mining companies are falling, as are the RSIs of precious metals. On August 25, 2016, the VanEck Vectors Junior Gold Miners ETF’s (GDXJ) RSI was close to 40. Most miners are closer to the 30 mark.