Where Mining Stock Correlation Trends Are Moving Now
Mining stocks and precious metals
As global tumult grips markets and investors turn to mining stocks as safe havens, it’s crucial to understand which stocks are closely tied to precious metals. Stocks with higher correlations to precious metals can be impacted more by global indicators that influence precious metals.
Precious metals have experienced sharp falls in prices as the upcoming Federal Reserve committee meeting could result in another interest rate hike. To be sure, rising interest rates not only cause choppy metals but also make things rough for mining companies.
Interested in SLW? Don't miss the next report.
Receive e-mail alerts for new research on SLW
It’s also widely expected that precious metal mining stocks will follow the direction of their respective precious metals, though on a day-to-day basis, the correlation may not be as strong, and so price movements can drift from those of metals.
The funds that closely follow gold and silver include the VanEck Vectors Gold Miners (GDX) and the Global X Silver Miners (SIL), which have seen losses of 5.1% and 7.1%, respectively, over the past 30 trading days.
Among Agnico-Eagle Mines (AEM), Primero Mining (PPP), Silver Wheaton (SLW), and Franco-Nevada (FNV), Franco-Nevada has the lowest correlation with gold, while Silver Wheaton has the highest correlation with gold. Over the past three years, Silver Wheaton and Primero have seen upward-scaling correlations with gold, while Agnico and Franco-Nevada saw a mixed trend in its correlation with gold.
Remember, metal investors have to study upward and downward trends because price change predictability can be affected by rises and falls in precious metal prices.
Notably, Silver Wheaton’s correlation with gold has risen from a three-year correlation of ~0.70 to a one-year correlation of ~0.81. A correlation of ~0.81 means that ~81% of the time, Silver Wheaton has moved in the same direction as gold.