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Analyzing the Volatility of Mining Stocks

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Feb. 28 2017, Updated 7:40 a.m. ET

Precious metal funds

Precious metal mining stocks are known to closely track the performances of precious metals. The iShares MSCI Global Gold Miners ETF (RING) and the Sprott Gold Miners ETF (SGDM) have risen due to the recent revival in precious metals. Mining stocks often display more volatility than precious metals.

It’s important to monitor the implied volatilities of large mining stocks, along with their RSI (relative strength index) levels, particularly in the wake of changing precious metal prices. In this part of the series, we’ll be looking at New Gold (NGD), Newmont Mining (NEM), Franco-Nevada (FNV), and Gold Fields (GFI).

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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.

On February 23, 2017, the volatilities of New Gold, Newmont, Franco-Nevada, and Gold Fields were 61.2%, 37.6%, 33.3%, and 59.6%, respectively. The volatilities of mining companies are often higher than the volatilities seen in precious metals themselves.

RSI levels

A 14-day RSI above 70 indicates the possibility of a downward movement in a stock’s price. A level below 30 shows the possibility of an upward movement in its price. The RSI levels of the four mining giants mentioned above have risen due to their rising stock prices.

New Gold, Newmont, Franco-Nevada, and Gold Fields have RSI levels of 30.8, 69.1, 83.1, and 52.5, respectively. These miners have seen consistent trailing 30-day returns due to rising prices of precious metals.

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