Analyzing the Volatility of Miners in February 2017

Since fluctuations in precious metals extend to funds and miners, it’s crucial to look at the fundamentals of mining companies.

Precious metal–based funds such as the leveraged ProShares Ultra Silver (AGQ) and the Direxion Daily Gold Miners Bull 3X ETF (NUGT) have seen price revivals in the past month. They have 30-day trailing gains of 1.9% and 19.5%, respectively. Mining stocks often show more volatility than precious metals.

Next, let’s look at the implied volatilities of large mining stocks and their RSI (relative strength index) levels in the wake of precious metal prices. We’ll look at Yamana Gold (AUY), Pan American Silver (PAAS), Barrick Gold (ABX), and Hecla Mining (HL)

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 Yamana Gold, Pan American Silver, Barrick Gold, and Hecla Mining were 58.2%, 50.0%, 43.4%, and 52.7%, respectively, on February 6, 2017.

RSI levels for each of these four mining giants rose due to their rising share prices. Yamana Gold, Pan American Silver, Barrick Gold, and Hecla Mining had RSI levels of 68.2, 78.4, 79.3, and 71.1, respectively.

An RSI level above 70 suggests the possibility of a reversal in price, while a level below 30 suggests a possible pullback in price. The trailing 30-day returns of most mining companies are positive due to precious metals’ diminishing safe-haven appeal.