Reading Mining Stocks’ Correlations with Gold
Mining stocks tumbled
When precious metals witnessed big falls in their prices on July 3, 2017, mining stocks followed suit. When you’re considering investing in the mining sector, it’s crucial to consider the relationships among mining stocks and precious metals.
A correlation analysis gives us an idea of the price movements in mining stocks and how closely they follow precious metals changes.
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Funds such as the Global X Silver Miners ETF (SIL) and the iShares MSCI Global Gold Miners ETF (RING) are correlated with gold. These two funds saw their prices fall 2.8% and 1.7%, respectively, on July 3, 2017. Precious metals were only marginally lower.
Among these miners, Silver Wheaton has the highest correlation with gold, while Franco-Nevada has the lowest correlation. Primero Mining and Silver Wheaton have seen their correlations with gold rise, while Agnico Eagle and Franco-Nevada have seen mixed trends in their relationships with gold over the past three years. A mixed trend indicates a correlation’s swinging upward and downward.
A rise in correlation suggests that a price change in gold will likely cause mining shares to trade in the same direction. A fall in correlation suggests that it’s less likely that mining shares will move with gold.
Silver Wheaton has seen its correlation rise to a three-year correlation of ~0.70 and a one-year correlation of ~0.81 with gold. A correlation of ~0.81 means that the company has moved in the same direction as gold ~81% of the time over the past year. It’s important to remember that correlation can move in different directions at different times.