How Has the Correlation of Mining Stocks Moved?
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 that have high correlations with gold include Silver Wheaton (SLW), Franco-Nevada (FNV), Cia De Minas Buenaventura (BVN), and AngloGold Ashanti (AU). These companies rose significantly YTD (year-to-date) in 2016, and 2017 started with a price revival. So, 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, AngloGold has the closest correlation to gold on a YTD basis among the four miners under review. Silver Wheaton is the least correlated with gold, mainly due to its YTD losses.
AngloGold and Cia De Minas saw its correlation to gold rise. AngloGold’s correlation rose from a ~0.57 three-year correlation to a ~0.7 YTD correlation. A correlation of ~0.7 suggests that about 70.0% of the time, AngloGold moved in the same direction as gold in the last year. Usually, a fall in gold leads to falls in the prices of mining stocks, and vice versa.
We should note here that relationships between gold and Silver Wheaton and Franco-Nevada 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 SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV).