Precious metal funds
As we saw in the previous part of this series, many of the fluctuations in precious metals have been a result of speculation about the Federal Reserve’s interest rate stance. Now let’s take a 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 Barrick Gold (ABX), Buenaventura Mining (BVN), Eldorado Gold (EGO), and Alacer Gold (ASR).
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 Barrick Gold, Buenaventura Mining, Eldorado Gold, and Alacer Gold were 48.3%, 54.6%, 60.6%, and 61.5%, respectively, on December 5, 2016.
The RSI levels for each of these four mining giants fell due to their falling share prices. Barrick, Buenaventura, Eldorado, and Alacer had RSI levels of 47.9, 45.8, 46.3, and 47.5, respectively.
The trailing 30-day returns of most mining companies are negative due to the diminishing safe-haven appeal of precious metals.