Which Mining Stock Is Most Correlated to Gold?

Precious metals saw some good news at the beginning of 2016. However, it’s important to know which mining stocks overperformed and which ones underperformed precious metals. Precious metal prices have been falling since Donald Trump won the US presidential election. As a result, mining stocks have also been falling.

Mining companies that have high correlations with gold include Sibanye Gold (SBGL), Gold Fields (GFI), Silver Wheaton (SLW), and Franco-Nevada (FNV). These companies have risen significantly YTD (year-to-date). However, the past few weeks have been choppy for these mining companies. Mining companies often amplify the returns of precious metals.

The substantial returns for most mining companies have been due to safe-haven bids that boosted gold and other precious metals. However, the demand for these mining companies seems to be in danger due to the recent fall in precious metal prices.

As you can see in the above table, Franco-Nevada is the most correlated with gold on a YTD basis among the four stocks we’ve mentioned. Gold Fields is the least correlated with gold.

All of the above four mining companies saw their correlations to gold rise. Franco-Nevada’s correlation rose from a ~0.59 three-year correlation to a ~0.63 one-year correlation. A correlation of ~0.63 suggests that about 63.0% of the time, Franco-Nevada moved in the same direction as gold in the past year.

Many other miners don’t have a stable correlation to gold and see a fluctuating trend in their correlations with gold. They may witness an upstream-downstream correlation to gold. A fall in gold usually leads to a fall in mining stocks, while a rise in gold usually leads to a rise in those stocks.

Leveraged mining funds such as the Direxion Daily Gold Miners 3X ETF (NUGT) and the ProShares Ultra Silver (AGQ) fell due to the fall in precious metals.