Precious metal funds
As we analyze the performance of the mining stocks during 1Q17, it’s crucial to look at the technical indicators of these stocks. The important figures that precious metal investors should monitor are volatility numbers and RSI levels to understand an asset’s relative undervaluation or overvaluation. In particular, investors should watch RSI levels in the wake of changing precious metal prices.
Leveraged mining funds such as the Direxion Daily Gold Miners (NUGT) and the ProShares Ultra Silver (AGQ) rose substantially at the beginning of 2017 due to the revival of precious metals. However, in the past month, these funds and mining stocks have started to suffer.
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 during a stagnant economy.
As of April 4, 2017, the volatilities of New Gold (NGD), Agnico Eagle Mines (AEM), Silver Wheaton (SLW), and Randgold Resources (GOLD) were 51.5%, 35.4%, 61.7%, and 54.1%, respectively. A mining company’s volatility is often higher than precious metals’ volatility.
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 a stock’s price.
The RSI levels of the four mining giants mentioned above have risen due to higher stock prices. New Gold, Agnico Eagle, Silver Wheaton, and Randgold had RSI levels of 68.8, 57.7, 64.5, and 55.4, respectively. With rises in the prices of these mining stocks, the RSI levels of the stocks have increased. However, the past one month was choppy for most miners, and they witnessed falls.