Analyzing the Volatilities of Mining Stocks


Dec. 29 2016, Updated 9:07 a.m. ET

Precious metals funds

Many of the fluctuations in precious metals have been the result of speculation about the Federal Reserve’s interest rate stance.

Precious metals–based funds such as the VanEck Vectors Junior Gold Miners ETF (GDXJ) and the Sprott Gold Miners ETF (SGDM) have fallen over the past few months. On a trailing-30-day basis, these two funds have fallen substantially. However, they continue to witness year-to-date (or YTD) rises.

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 metals prices. We’ll look at Agnico Eagle Mines (AEM), Pan American Silver (PAAS), Hecla Mining (HL), and IAMGOLD (IAG).

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 it is in a stagnant economy.

The volatilities of Agnico Eagle, Pan American, Hecla, and IAMGOLD were 46.3%, 52.7%, 57.1%, and 68.1%, respectively, on December 5, 2016.

RSI levels

The RSI levels of each of these four mining giants fell due to their falling share prices. Agnico Eagle, Pan American, Hecla, and IAMGOLD saw RSI levels of 38.7, 59.2, 54.9, and 51.5, respectively.

The trailing-30-day returns of most mining companies are negative due to the diminishing safe-haven appeal of precious metals. Silver mining companies have shown comparatively low losses. In fact, Hecla Mining and Pan American have trailing-30-day gains as of December 5, 2016.


More From Market Realist