Key Macroeconomic Events that Could Impact Gold
Precious metal miners gain
Since the beginning of 2016, precious metal mining shares have followed precious metal prices. Miners shed their 2015 losses and realized substantial gains during the gold and silver rally. The correlation between mining stocks and gold remains high.
However, gold has been falling during the past week. The marginal decline in precious metals could also amplify the losses in mining stocks. Miners took a comparative fall relative to gold. Gold’s overall performance in the first quarter was remarkably positive.
First Majestic Silver (AG), New Gold (NGD), Silver Wheaton (SLW), and AngloGold Ashanti (AU) rose by 248.9%, 84.1%, 53.4%, and 102.5%, respectively, on a YTD (year-to-date) basis. Safe-haven bids on gold and silver have been crucial contributors to the rally for miners in 2016.
The VanEck Vectors Gold Miners ETF (GDX) has risen by 73.3% YTD. Due to the sudden substantial increase in prices for these miners, many either traded close to or below their target prices. However, a few miners such as NewGold, Silver Wheaton, and AngloGold are still trading below their target prices. This suggests a possible rise in price.
Technical indicators
First Majestic, NewGold, Silver Wheaton, and AngloGold are trading at premiums of 85.5%, 23.4%, 20%, and 17.4%, respectively, to their 100-day moving averages. GDX is also trading at a premium of 22.3% 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 these four miners, among others, have fallen considerably with the declining 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 50.
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