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Reading the Technicals of South African Mining Companies

Meera Shawn - Author
By

Oct. 4 2016, Updated 3:25 p.m. ET

Precious metals funds

Many of the fluctuations in precious metals have been determined by the Federal Reserve’s stance on the interest rate, and these fluctuations play on precious metals–based funds.

Gold- and silver-based funds such as the PowerShares DB Gold ETF (DGL) and the Physical Silver Shares ETF (SIVR) have seen their returns fall in the past few months. These two funds, in particular, have seen trailing-30-day falls of 0.84% and 3.1%, respectively, though their YTD (year-to-date) rises continue.

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Let’s look now at the implied volatilities of mining companies and their RSI (relative strength index) levels in the wake of the carnage among precious metals prices. We’ll look specifically at South African mining companies Sibanye Gold (SBGL), Gold Fields (GFI), AngloGold Ashanti (AU), and Harmony Gold (HMY).

Implied volatility

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

The volatilities of SBGL, GFI, AU, and HMY were 60.2%, 61.9%, 52.6%, and 62.4%, respectively, on October 3, 2016.

RSI

The RSIs of each of these four mining giants fell due to the falls in their share prices. SBGL, GFI, AU, and HMY saw RSI levels of 37.6, 39.7, 39.3, and 43.7, respectively.

These four South African miners make up a combined 11.5% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).

An RSI level of above 70 indicates that a stock has been overbought and could fall. An RSI level of below 30 indicates that a stock has been oversold and could rise. The trailing-30-day returns of these mining companies were negative due to the diminishing haven appeal of precious metals. Most miners’ RSIs are now trading close to the 40 mark.

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