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Precious Metals Have Buoyed Mining Stocks in 2016

Meera Shawn

A Perfect Storm in Global Markets Causes Gold to Shine

(Continued from Prior Part)

Top performers

Precious metals mining shares have been in a conundrum given the extreme price changes in their core metals. While 2015 gave way to a slump for these miners and most traded at considerable discounts to their target prices, the new year has brought a ray of hope.

Amid the equity market rout that extended from the Chinese market drop, the mining sector has proved to be one of the best performers since the start of 2016. Mining-based stocks GoldCorp (GG), NewGold (NGD), Newmont Mining (NEM), and Agnico-Eagle Mines (AEM) have surged 18.8%, 24.6%, 35.7%, and 27.5%, respectively, since the start of the year. While GG and NGD are still trading below their target prices, NEM and AEM have crossed these targets and are trading considerably above them.

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These four stocks together contribute a whopping 20% to the price changes in the Market Vectors Gold Miners ETF (GDX). GDX itself has risen 24.3% on a year-to-date basis.

Technical indicators

GoldCorp and NewGold were trading at $13.7 and $2.9, respectively, as of February 5, 2016. These prices were at premiums of 10.6% and 19.9%, respectively, compared to their 100-day moving average prices. Newmont and Agnico-Eagle were trading at $24.4 and $33.5, respectively, on the same day. These figures reflected premiums of 33.8% and 22.7%, respectively, compared to their respective 100-day moving average prices.

GDX was also trading at a 19% premium compared to its 100-day moving average. Such considerable premium amounts could indicate a possible downward revision in prices.

The RSI (relative strength index), a technical momentum indicator, is trading close to 70 for all these stocks and GDX. An RSI figure of above 70 indicates a possible overbought situation and a possible downward revision in prices. Just like the 100-day moving averages, the stocks’ 20-day moving averages are also way below the current trading prices for these miners.

Continue to Next Part

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