Analyzing the Implied Volatility of South African Mining Stocks



Precious metal funds

Many of the recent 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 Sprott Gold Miners (SGDM) 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 13.2% and 12.7%, 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 Alamos Gold (AGI), First Majestic Silver (AG), B2Gold (BTG), and Royal Gold (RGLD).

Article continues below advertisement

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 Alamos, First Majestic, B2Gold, and Royal Gold were 67.4%, 70%, 67.1%, and 41.1%, respectively, on December 5, 2016.

RSI levels

The RSI levels for each of these four mining giants fell due to their falling share prices. Alamos, First Majestic, B2Gold, and Royal Gold saw RSI levels of 39.4, 61.7, 47.1, and 51.5, respectively.

The trailing-30-day returns of most of the mining companies are negative due to the diminishing safe-haven appeal of precious metals.


More From Market Realist