Why Are Giant Miners Suffering, and Can They Rebound?



Precious metal funds

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

Gold-based funds such as the leveraged Direxion Daily Gold Miners Bull 3X ETF (NUGT) and the ProShares Ultra Silver (AGQ) have fallen in the past few months. These two funds have seen trailing 30-day falls of 48.9% and 11.3%, respectively, although their YTD (year-to-date) rises continue to be positive.

Let’s look now at the implied volatilities of mining companies and their RSI (relative strength index) levels after the carnage for precious metals. We’ll look specifically at Goldcorp (GG), Newmont Mining (NEM), Agnico-Eagle Mines (AEM), and Barrick Gold (ABX).

Article continues below advertisement

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 during a stagnant economy.

The volatilities of GG, NEM, AEM, ABX were 48.7%, 46.1%, 46.3%, and 50%, respectively, on October 5, 2016.


The RSI levels for each of these four mining giants fell due to their falling share prices. GG, NEM, AEM, and ABX saw RSI levels of 32.2, 32.1, 31.5, and 35.0, respectively. Most of the miners have RSI levels close to 30 as of Wednesday, October 5, 2016.

These four giant miners make up a combined 25% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).

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 trailing-30-day returns of these mining companies were negative due to the diminishing haven appeal of precious metals.


More From Market Realist