Mining sentiment revived
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 experienced some relief.
Fears of an interest rate hike’s effect on US Treasuries have negatively impacted precious metals as well as mining shares. Precious metals are non-yield payers, so their opportunity costs rise when interest rates rise.
Most miners have seen losses year-to-date, leading to trailing-30-day losses. Giant mining companies such as First Majestic Silver (AG), B2Gold (BTG), Royal Gold (RGLD), and Goldcorp (GG) saw revivals in their prices due to the tremendous rebounds in gold and silver on September 6, 2016.
Most miners are now trading close to or below their 100-day moving averages, in contrast to their previous huge premiums. A huge premium over a trading price suggests a possible fall in price, and a large discount may indicate a rise.
The RSI (relative strength index) readings for mining companies fell along with the fall in precious metals prices. However, compared to the previous week, RSI levels are now higher. Remember, an RSI level of above 70 indicates that a stock has been overbought and could fall, and an RSI level of below 30 indicates that a stock has been oversold and could rise.
On September 7, 2016, the VanEck Vectors Junior Gold Miners ETF’s (GDXJ) RSI reading was close to 54. Most miners revived from RSIs that were near the 40–50 mark.