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Understanding the Volatility in Mining Stocks

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Precious metal funds

Gold-based funds like the Physical Swiss Gold Shares ETF (SGOL) and the leveraged Direxion Daily Junior Bull Gold 3X (JNUG) have seen their returns fall during the past few months. These two funds, in particular, saw 30-day-trailing falls of 2% and 37.2%, respectively, though their YTD (year-to-date) gains continue to be positive.

Let’s look now at the implied volatilities of mining companies and their RSI (relative strength indicator) levels after the carnage among precious metal prices. We’ll look specifically at Silver Wheaton (SLW), Yamana Gold (AUY), Pan American Silver (PAAS), and Coeur Mining (CDE).

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Implied volatility

Call implied volatility takes into account the changes in the price of an asset with respect to variations in the price of the call option. Remember, during times of global and economic turbulence, volatility is higher than during a stagnant economy.

The volatilities of SLW, AUY, PAAS, and CDE were 45.3%, 61.3%, 54.5%, and 66.3%, respectively, on September 20, which was much lower than the overall volatility during the previous few months.

RSI indicator

The RSIs (relative strength indicators) of these four mining giants all fell due to the fall in their prices, despite the losses in precious metals. Specifically, SLW, AUY, PAAS, and CDE saw RSI levels of 45.7, 42.9, 41.9, and 41.3, respectively.

Notably, an RSI level above 70 indicates that a stock has been overbought and could fall. An RSI level below 30 indicates that a stock has been oversold and could rise. The 30-day trailing returns of these mining companies were also negative due to diminishing haven appeals.

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