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How Mining Stocks React to Precious Metals

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Mining companies regained

Donald Trump’s victory in the 2016 US presidential election initially resulted in fear among precious metal investors. Uncertainty in the market has given air to precious metals as well as precious metal mining companies. The Federal Reserve’s rate hike in December 2016 pressured precious metals, which joined mining companies in a downward trend.

Precious metal mining stocks typically follow precious metals, moving in the same direction. Some investors expected choppy markets for miners after Trump’s victory, but that didn’t happen.

On a YTD (year-to-date) basis, Goldcorp (GG), Newmont Mining (NEM), Sibanye Gold (SBGL), and Gold Fields (GFI) have seen reasonable rises in their stocks. They rose 22.5%, 8.7%, 26.3%, and 15.3%, respectively. The VanEck Vectors Gold Miners ETF (GDX) has also seen a year-to-date rise of 19.2%.

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Technical indicators

The above four mining stocks are trading above their 100-day moving averages as well as their 20-day moving averages. However, only Gold Fields is trading below its 20-day and 100-day moving averages. 

A substantial premium on a stock’s trading price suggests a potential fall in price. A discount could indicate a rise in price. Target prices for the above four mining companies are significantly higher than their current prices, which suggests a positive outlook.

An RSI (relative strength index) 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. Mining companies’ RSI readings are slowly rising.

On February 15, 2017, GDX’s RSI level was close to 67.4. The future interest rate hike could further negatively impact precious metals as well as precious metal miners.

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