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Reading the Performance of the Giant Miners

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Updated

Mining plummeted

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

On an 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.

The fear of an interest rate hike on the US Treasuries had negatively impacted precious metals as well as the mining shares. Precious metals are no-yield payers, so their opportunity cost would increase with a hike in interest rates.

Most miners lost on their year-to-date gains, leading to a 30-day trailing loss. Giant mining companies like Royal Gold (RGLD), GoldCorp (GG), Newmont Mining (NEM), and Barrick Gold (ABX) saw a revival in their prices due to the rebound in gold and silver on Thursday, September 1.

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Technical indicators

Most of the miners are now trading closer to their 100-day moving averages or even below, in contrast to their previous huge discounts with respect to the 100-day moving averages. A huge premium over a trading price suggests a possible fall in prices, and discounts may indicate a rise. 

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

On September 1, 2016, the VanEck Vectors Junior Gold Miners ETF’s (GDXJ) RSI reading was close to 39. Most of the miners are close to the 30 mark.

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