Reading the Volatility of Mining Companies



Precious metal funds

Many of the fluctuations in precious metals have been a result of speculation about the Federal Reserve’s interest rate stance. In this part of the series, we’ll look at the fundamentals of South African precious metal miners.

Precious metal–based funds such as the VanEck Vectors Junior Gold Miners ETF (GDXJ) and the Global X Silver Miners ETF (SIL) have fallen over the past few months. On a trailing 30-day basis, these two funds have fallen 15.9% and 14.9%, respectively, although they’ve risen year-to-date.

Next, 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. We’ll look at Yamana Gold (AUY), Pan American Silver (PAAS), Coeur Mining (CDE), and Barrick Gold (ABX).

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Implied volatility

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 in a stagnant economy.

The volatilities of Yamana Gold, Pan American Silver, Coeur Mining, and Barrick Gold were 61.7%, 51.0%, 61.8%, and 45.3%, respectively, on November 21, 2016.

RSI levels

The RSI levels for each of these four mining giants fell due to their falling share prices. Yamana, Pan American, Coeur, and Barrick saw RSI levels of 33.4, 54.5, 41.2, and 40.0, respectively.

The trailing 30-day returns of most of the mining companies are negative due to the diminishing safe-haven appeal of precious metals. Pan American is the only stock of the four that has a 30-day trailing gain.


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