Reading Mining Companies’ Correlations
Mining stocks and gold
It’s important to understand which mining stocks have overperformed and which have underperformed precious metals. Precious metals 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 they saw strong starts to 2017. 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 with 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 has the lowest YTD correlation with gold—and Sibanye Gold saw their correlations with gold rise over the last three years. Sibanye Gold’s correlation rose from a ~0.51 three-year correlation to a ~0.78 YTD correlation. A correlation of ~0.78 suggests that about 78% of the time, Sibanye Gold has 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 upward-downward trends. Mining funds with visible correlations with fluctuations in precious metals include the Direxion Daily Junior Gold Miners ETF (JNUG) and the VanEck Vectors Junior Gold Miners ETF (GDXJ).