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Analyzing Miners’ Volatility at the End of December

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Jan. 3 2017, Published 12:01 p.m. ET

Precious metals funds

Many of the fluctuations in precious metals have been a result of speculation about the Fed’s interest rate stance. Precious metal–based funds such as the VanEck Vectors Junior Gold Miners Fund (GDXJ) and the Sprott Gold Miners (SGDM) fell over the past few months. On a trailing 30-day basis, the two funds fell substantially. However, they continue to witness year-to-date 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 metal prices. We’ll look at Barrick Gold (ABX), AngloGold Ashanti (AU), Kinross Gold (KGC), and Eldorado Gold (EGO).

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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 it is in a stagnant economy. Barrick Gold, AngloGold Ashanti, Kinross Gold, and Eldorado Gold’s volatilities were 48.3%, 51.1%, 64.2%, and 60.6%, respectively, at the beginning of December.

RSI levels

The RSI levels for each of the four mining giants fell due to falling share prices. Barrick Gold, AngloGold Ashanti, Kinross Gold, and Eldorado Gold saw RSI levels of 47.9, 42.1, 47.2, and 46.3, respectively.

The trailing 30-day returns of most mining companies are negative due to the diminishing safe-haven appeal of precious metals. An RSI level above 70 indicates that a stock has been overbought and could fall. An RSI level below 30 indicates that a stock has been oversold and could rise.

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