Miners Followed Precious Metals, Slowly Shedding Their Gains

Gold Drowns, Other Precious Metals Cling to Life on Friday

(Continued from Prior Part)

Miners followed metals

Since the beginning of 2016, precious metal mining shares have followed precious metals. Miners got rid of their 2015 losses and actively made substantial gains in the gold and silver rally. The correlation between mining stocks and gold remains high. But gold has been falling over the past few trading days. Precious metals’ marginal fall could also amplify losses in mining stocks. Miners took a comparative fall with gold. Gold’s overall performance in the first quarter was remarkably positive.

First Majestic Silver (AG), B2Gold (BTG), Goldcorp (GG), and Hecla Mining (HL) rose 250.8%, 95.1%, 50.3%, and 124.3%, respectively, on a YTD (year-to-date) basis. Crucial contributors to the rally for miners in 2016 have been safe-haven bids on gold and silver. However, First Majestic Silver and B2Gold fell 0.09% and 1.5%, respectively, on Friday, May 20, 2016. Goldcorp and Hecla Mining rose 0.46% and 2.2%, respectively, that same day.

The VanEck Vectors Gold Miners ETF (GDX) has risen 75.3% YTD. Due to the sudden substantial increase in prices for these miners, most of them were either trading close to or below their target prices until last week. However, a few miners such as B2Gold and Goldcorp are below their target prices. This suggests a possible rise in price.

Technical indicators

First Majestic Silver, B2Gold, Goldcorp, and Hecla are trading at premiums of 88.9%, 42.1%, 14.4%, and 2.2%, respectively, to their 100-day moving averages. GDX is also trading at a premium of 25% to its 100-day moving average. Such a massive premium over the trading price might suggest a possible pullback in price.

The RSI (relative strength index) readings for the above four miners and most other miners have fallen considerably with the fall in the price of gold. An RSI level above 70 indicates that a stock has been overbought and could see a downward revision. An RSI level below 30 indicates that a stock has been oversold and could see an upward revision. GDX’s RSI is 52.

Browse this series on Market Realist:

• Part 1 - Gold Drowns, Other Precious Metals Cling to Life on Friday

• Part 2 - How Did Economic Numbers Play on DXY and Gold?

• Part 3 - Why Did SPDR Gold Shares Rise in May?