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Reading the Volatilities of Mining Shares

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Precious metals funds

Precious metals 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 metals prices. In this part of the series, we’ll be looking at Silver Wheaton (SLW), Franco-Nevada (FNV), Yamana Gold (AUY), and Pan American Silver (PAAS).

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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 15, 2017, the volatilities of Silver Wheaton, Franco-Nevada, Yamana Gold, and Pan American were 37.1%, 33.3%, 56.4%, and 48.9%, respectively. The volatilities of mining companies are often higher than the volatilities seen in precious metals themselves.

RSI levels

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

Silver Wheaton, Franco-Nevada, Yamana Gold, and Pan American have RSI levels of 67.4, 83.1, 61, and 60.2, respectively. These miners have seen reasonable trailing-30-day returns due to rises in the prices of precious metals.

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