uploads/2017/02/rsi-6-1-1-1-1.jpg

Analyzing the Volatility of Mining Stocks

By

Updated

Precious metal funds

As 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 10.2% and 43.9%, 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), Coeur Mining (CDE), and Barrick Gold (ABX).

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 in a stagnant economy.

The volatilities of Yamana Gold, Pan American Silver, Coeur Mining, and Barrick Gold were 58.8%, 50.0%, 62.3%, and 41.9%, respectively, on January 26, 2017.

RSI levels

RSI levels for each of these four mining giants rose due to their rising share prices. Yamana Gold, Pan American Silver, Coeur Mining, and Barrick Gold had RSI levels of 55.4, 60.4, 53.5, and 64.8, 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.

Advertisement

More From Market Realist