Precious metal funds
Many of the recent fluctuations in precious metals have been a result of speculation about the US Federal Reserve’s interest rate stance in December. But it’s also useful for investors to look at the fundamentals of South African precious metal mining companies.
Precious metal-based funds including the Sprott Gold Miners ETF (SGDM) and the Global X Silver Miners ETF (SIL) have seen their returns fall for the past few months. Specifically, on a trailing 30-day basis, SGDM and SIL have fallen 11.8% and 14.9%, respectively, though they’ve risen year-to-date.
Let’s look at the implied volatilities of large mining stocks and their RSI (relative strength index) levels in the wake of the carnage in precious metal prices. For our purposes, we’ll focus on Agnico-Eagle Mines (AEM), Primero Mining (PPP), AngloGold Ashanti (AU), and Hecla Mining (HL).
Call implied volatility takes into account the changes in an asset’s price due to variations in the price of its call option. During times of global and economic turbulence, volatility is higher than it is in a stagnant economy.
The volatilities of Agnico, Primero, AngloGold, and Hecla were 42.8%, 176%, 50.3%, and 56%, respectively, on November 21, 2016.
The RSIs (relative strength indexes) for each of these four mining giants fell due to their falling share prices. Agnico, Primero, AngloGold, and Hecla saw RSI levels of 37.5, 21.2, 33.2, and 50.8, respectively, on November 25.
The trailing-30-day returns of most mining companies, in fact, are negative due as of this date due to the diminishing safe-haven appeal of precious metals. Of the above four companies, only Hecla Mining has seen a 30-day-trailing gain.