Inside Mining Companies’ Correlation Trends
Mining stocks and gold
Uncertainty in markets significantly impacts precious metals and affects precious metal stocks, which tend to track the performance of precious metals carefully. Precious metal stocks (IAU) (SLV) are often more closely synced with the metals that they mine than they are with the overall equity market (SPY).
It’s important, at the same time, to watch which mining stocks have overperformed and which ones have underperformed precious metals. The buoyancy of precious metals could be challenged even more by future interest rate hikes, as the Fed indicated by its latest hike on March 15, which can cause mining stocks to fall.
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Mining companies with high correlations to gold include Agnico-Eagle Mines (AEM), Primero Mining (PPP), Silver Wheaton (SLW), and Franco-Nevada (FNV). Although mining companies often amplify the returns of precious metals, they’ve had mixed performances for the past week.
Upward and downward trends
While all four of the above stocks are closely related to precious metals, Silver Wheaton has had the highest correlation to gold on a year-to-date basis, whereas Franco-Nevada has the least correlation. Over the past three years, Primero and Silver Wheaton have seen upward-trending correlations to gold, while Agnico-Eagle Mines and Franco-Nevada saw a mix of an upward and downward trend.
Specifically, Silver Wheaton ‘s correlation saw a rise from a ~0.70 three-year correlation to a ~0.81 one-year correlation. A correlation of ~0.81 means that about 81% of the time, Silver Wheaton has moved in the same direction as gold during the past year. Remember, any fall in gold usually leads to a fall in mining stocks, and vice versa.