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Mining Stocks’ Extremely Low RSI Levels: What to Make of It

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Mining companies are recouping their losses

Donald Trump’s victory in the 2016 US presidential election in November 2016 initially worried precious metal investors. However, uncertainty in the market since the election has boosted precious metals and precious metal mining companies.

The Federal Reserve’s rate hike in December 2016 pressured precious metals, which have now joined mining stocks on a downward trend. Precious metal mining stocks typically move in the same direction as precious metals. Some investors expected choppy waters for miners after Trump’s victory, but that didn’t happen.

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On a year-to-date basis, Sibanye Gold (SBGL), Agnico Eagle Mines (AEM), and Barrick Gold (ABX) have seen significant upswings of 11.9%, 21.5%, and 23.1%, respectively. However, New Gold (NGD) saw a year-to-date loss of 18.3%. The VanEck Vectors Gold Miners ETF (GDX) saw a year-to-date rise of 22.5%.

Technical indicators

The four mining stocks mentioned above are trading above their 20-day moving averages. A substantial premium on a stock’s trading price suggests a potential fall in price, while a discount could indicate a rise in price. Most miners are trading at a discount to their 100-day moving averages. Barrick Gold is the exception.

The target prices of our four mining companies are significantly higher than their current prices, suggesting a positive outlook.

Low RSI levels

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 levels are slowly rising. 

The RSI level for the VanEck Vectors Gold Miners ETF (GDX) is near 16, suggesting that it could see an upward price correction soon. Any future interest rate hikes could negatively impact precious metals and precious metal miners.

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