Precious metal funds
As we saw in the previous part of this series, many of the fluctuations in precious metals resulted from speculation about the Fed’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 iShares MSCI Gold ETF (RING) and the Sprott Gold Miners ETF (SGDM) have fallen over the past few months. Mining stocks often show more volatility than the metals themselves.
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 of precious metal prices. We’ll look at Gold Fields (GFI), Agnico Eagle Mines (AEM), Silver Wheaton (SLW), and Coeur Mining (CDE).
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 Gold Fields, Agnico Eagle Mines, Silver Wheaton, and Coeur d’Alene Mining were 68.9%, 46.3%, 49.2%, and 62.3%, respectively, on December 5, 2016.
The RSI levels for each of these four mining giants fell due to their falling share prices. Gold Fields, Agnico, Silver Wheaton, and Coeur d’Alene Mining had RSI levels of 36.2, 38.7, 38.4, and 50.3, respectively.
The trailing 30-day returns of most mining companies are negative due to precious metals’ diminishing safe-haven appeal.