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What Do the Technicals Say about South African Miners?

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South African miners

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.

On average, miners follow the direction of gold prices about 50% of the time. After the recent Fed meeting in July, precious metals were relieved, and so were mining stocks. The United Kingdom’s Brexit vote in June 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 the global turmoil. Most mining shares also saw positive days on Thursday as gold increased despite the fall in the other three precious metals.

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Sibanye Gold (SBGL), Gold Fields (GFI), AngloGold Ashanti (AU), and Harmony Gold (HMY) have risen 235.5%, 132.1%, 219%, and 414.5%, respectively, on a year-to-date basis. The VanEck Vectors Junior Gold Miners ETF (GDXJ) has risen 166.3% year-to-date. Due to mining stocks’ sudden substantial increases, many are trading close to or above their target prices.

Technical indicators

Sibanye, Gold Fields, AngloGold, and Harmony are trading at massive premiums of 40.3%, 41.6%, 38.2%, and 28.2%, respectively, to their 100-day moving averages. A huge premium over a trading price suggests a possible fall in price. 

The RSI (relative strength index) readings for mining companies are rising, as are the RSIs of precious metals. An RSI level above 70 indicates that a stock has been overbought and could fall, while an RSI level below 30 indicates that a stock has been oversold and could rise.

On August 4, 2016, GDXJ’s RSI reading was close to 63.

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