How Are Mining Stocks Correlated to Gold?
Mining stocks and gold
It’s important to understand which mining stocks 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 with high correlations with gold include Sibanye Gold (SBGL), Gold Fields (GFI), Pan American Silver (PAAS), and Coeur Mining (CDE). These companies rose significantly YTD (year-to-date) in 2016, and 2017 started with a price revival. While mining companies often amplify precious metals’ returns, the past few weeks have been choppy for these companies.
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As you can see in the above table, Sibanye Gold has the closest correlation to gold on a YTD basis among the four miners under review. Coeur Mining is the least correlated with gold, mainly due to its YTD losses.
Coeur Mining, which had the lowest YTD correlation to gold, and Sibanye Gold saw their correlations to gold rise over the last three years. Sibanye Gold’s correlation increased from an ~0.51 three-year correlation to an ~0.78 YTD correlation. A correlation of ~0.78 suggests that about 78% of the time, Sibanye Gold moved in the same direction as gold in the last year. Usually, a fall in gold leads to falling mining stock prices, and vice versa.
The relationships between gold and Gold Fields and Pan American haven’t been stable and have seen an upward-downward trend. The mining funds that have a visible correlation to the fluctuations in precious metals include the Direxion Daily Gold Miners ETF (NUGT) and the VanEck Vectors Junior Gold Miners ETF (GDXJ).