Why Investors Have Stopped Pouring Money into Precious Metals
Bullion rally slows down
March brought some disappointment to precious metal miners after gains in January and February. However, the overall performance of gold in 1Q16 was remarkably good. Safe-haven demand has lifted gold and silver prices substantially since the beginning of 2016, but gold experienced losses in March. Gold, silver, platinum, and palladium have fallen 3%, 3.6%, 3.1%, and 2.8%, respectively, on a trailing-30-day basis. The initial gains in the precious metals have helped mining-based companies clean up the carnage they experienced in 2015.
However, major precious metal mining companies like Agnico Eagle Mines (AEM), Yamana Gold (AUY), Pan American Silver (PAAS), and IAMGOLD (IAG) have seen their positive returns slow down over the past month. The ups and downs in precious metals have been driven by the US interest rate scenario. Specifically, AEM, AUY, PAAS, and IAG have risen 38%, 64.5%, 68.4%, and 55.6% respectively, on a year-to-date basis.
The current prices of Agnico Eagle Mines and Yamana Gold remain considerably lower than their respective best target prices. However, Pan American Silver and IAMGOLD are trading marginally above their target prices.
Technical indicators
Agnico Eagle Mines, Yamana Gold, Pan American Silver, and IAMGOLD all have RSI (relative strength index) readings of approximately 50. A level above 70 indicates that a stock is overbought and may see a downward revision. A level below 30 indicates that a stock is oversold and may see an upward revision. The Market Vectors Gold Miners ETF’s (GDX) RSI level is at 50.3.
Agnico Eagle Mines, Yamana Gold, Pan American Silver, and IAMGOLD are trading at premiums of 18.4%, 34.6%, 37.6%, and 24.1%, respectively, to their 100-day moving averages. GDX is also trading at a premium of 25% to its 100-day moving average.
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