How Are Mining Companies Reacting to a Possible Rate Hike?



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 14.3% 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 changes in precious metal prices. We’ll look at Goldcorp (GG), Newmont Mining (NEM), Agnico-Eagle Mines (AEM), 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 Goldcorp, Newmont Mining, Agnico-Eagle Mines, and Barrick Gold were 44.0%, 45.6%, 46.3%, and 48.3%, respectively, as of December 2016. The volatilities of mining companies react strongly to changes in the volatilities of their respective precious metals.

RSI levels

The RSI levels for each of these four mining giants fell due to their falling share prices. Goldcorp, Newmont, Agnico Eagle, and Barrick saw RSI levels of 44.9, 47.7, 38.7, and 47.9, respectively.

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


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