The reactions of mining companies
Donald Trump’s recent victory in the US presidential election initially resulted in a sentiment of fear among precious metal investors. However, as the fear subsided, precious metals and mining stocks slowly started falling.
The Brexit vote in June 2016 also had a significant impact on mining companies and precious metals. Some investors also expected choppy markets for precious metal miners after Trump’s victory. However, that didn’t happen.
Now, the possibility of a December rate hike in the United States has started to affect these metals. Typically, mining companies track gold and silver more closely than they follow other precious metals.
The VanEck Vectors Gold Miners ETF (GDX) has had a substantial YTD rise of 55.3%. However, GDX has fallen sharply in the past few months.
Currently, most mining companies are trading below their 100-day moving averages. However, they were trading at discounts compared to their significant premiums a few months ago.
A substantial premium over a stock’s trading price suggests a potential fall in price, while a discount could indicate a rise in price. The target prices for the above four mining companies are significantly higher than their current prices, which suggests a positive outlook.
That said, mining companies’ RSI (relative strength index) readings are falling, as are the RSI levels of precious metals. On November 21, 2016, the RSI level for GDX was close to 38. An RSI 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.