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How Did the Fed Just Play on Precious Metals?

PART:
1 2 3 4 5
Part 3
How Did the Fed Just Play on Precious Metals? PART 3 OF 5

Analyzing the Correlation of Mining Stocks

Correlation analysis

Most precious metal mining stocks saw a fall in their prices on Wednesday, September 20, as the Fed gave its latest verdict. Remember, when we analyze the precious metal mining sector, it’s important that we consider the correlation that these miners have with gold and silver.

We’ve selected AngloGold Ashanti (AU), Hecla Mining (HL), Kinross Gold (KGC), and Eldorado Gold (EGO) for a correlation study with gold.

Analyzing the Correlation of Mining Stocks

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Mining funds also closely follow precious metals and their trends in price movements. Among the mining funds that have seen strong YTD (year-to-date) gains are the Sprott Gold Miners ETF (SGDM) and the VanEck Vectors Junior Gold Miners ETF (GDXJ), which have risen 10.3% and 8.1%, respectively, so far this year.

Correlation analysis

A correlation study of mining shares is crucial since the movement of the stocks can be studied by following the changes in precious metals.

Among the four miners that we’re analyzing in this part, AngloGold has the lowest correlation to gold YTD, while Kinross has the highest correlation. Only Kinross has seen an upward moving trend in its correlation with gold over the past three years. The other three have seen mixed upward or downward trends.

Kinross has a three-year correlation of 0.69 and a one-year correlation of 0.75. A correlation of 0.75 implies that about 75.0% of the time during the past year, Kinross has moved in the same direction as gold.

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