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Why Are Precious Metal Miners Falling?

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The reactions of mining companies

Precious metal mining companies suffered in 2015 due to falls in precious metal prices. In 2015, precious metals took much of their movement cues from the Federal Reserve’s meetings, which determined whether or not interest rates would rise. Mining companies followed the direction of gold prices about 50% of the time.

Then, the United Kingdom’s Brexit vote in June 2016 had a significant effect on mining companies and precious metals. Gold and silver rose to two-year highs due to safe-haven bids in the wake of this game-changing global event. Now, the possibility of a rate hike in the United States in December has started to play on these metals.

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Franco-Nevada (FNV), Randgold Resources (GOLD), Pan American Silver (PAAS), and Buenaventura (BVN) have seen YTD (year-to-date) rises of 41.0%, 46.3%, 141.4%, and 193.5%, respectively. The VanEck Vectors Junior Gold Miners ETF (GDXJ) has also seen a substantial YTD rise of 127.7%. But these returns have taken some sharp falls in the past few months.

Technical indicators

Most mining companies are now trading close to their 100-day moving averages, although at discounts compared to the massive premiums a few months ago. Remember, a substantial premium over a stock’s trading price suggests a potential fall in price, and a discount could indicate a rise in price. However, the target prices for the above four mining companies are significantly higher than their current prices, suggesting a positive outlook. 

That said, the RSI (relative strength index) readings of mining companies are falling, as are the RSI levels for precious metals. On October 5, 2016, the RSI level for GDXJ was close to 39.7. The RSI levels of most miners are now close to 30.0.

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