Analyzing the Correlation of Mining Stocks to Precious Metals
Mining stocks and gold
It’s important to understand which mining stocks have overperformed and underperformed precious metals. Precious metal prices have been falling since Donald Trump won the US presidential election on November 8, 2016. As a result, mining stocks have also been falling.
Mining companies that have high correlations with gold include Sibanye Gold (SBGL), Gold Fields (GFI), Agnico-Eagle Mines (AEM), and Primero Mining (PPP). These companies rose significantly YTD (year-to-date) in 2016, prior to the fall in November and December. Then 2017 started with a price revival. Don’t forget that mining companies often amplify precious metals’ returns.
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As you can see in the above table, Sibanye Gold is the most correlated with gold on a YTD basis among the four stocks in this review. Primero Mining is the least correlated with gold.
Agnico-Eagle Mines and Sibanye Gold saw their correlations to gold rise. Sibanye’s correlation rose from a ~0.52 three-year correlation to a ~0.78 one-year correlation. The correlation of ~0.78 suggests that about 78.0% of the time, Sibanye has moved in the same direction as gold in the past year. Usually, a fall in gold leads to falls in the prices of mining stocks, and vice versa.
Notably, the relationship between gold and Primero Mining hasn’t been stable and has seen an upward-downward trend. Mining funds such as the SPDR S&P Metals and Mining ETF (XME) and the Global X Silver Miners ETF (SIL) rose due to rises in precious metals.