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Understanding Miners’ Correlation to Gold

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Dec. 4 2020, Updated 10:53 a.m. ET

Correlation with gold

As we know, the precious metals market has skyrocketed in 2016, touching multimonth highs. However, it’s crucial for investors to know which mining stocks are overperforming or underperforming their peers, and the shortlist among upstream and downstream shares can be of the utmost importance.

Precious metals mining shares that have high correlations with gold include Royal Gold (RGLD), GoldCorp (GG), New Gold (NGD), and Newmont Mining (NEM). These four stocks have seen YTD (year-to-date) rises of 89.6%, 59.2%, 86.2%, and 109.5%, respectively. These substantial returns since the beginning of 2016 are most likely due to the same safe-haven bids that have lifted gold and other precious metals.

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Uptrends or downtrends in correlation

As we can see in the above chart, GoldCorp’s correlation with gold is at its highest YTD. However, GoldCorp has seen a falling correlation with gold YTD. The pair’s correlation was stronger about two years ago. However, its YTD correlation remains lower than in the past year.

Newmont Mining saw a surge in correlation from the last three years to the last year. The relationship of the other three miners with gold hasn’t been stable over the last three years, and we’ve seen both upward and downward momentum in their correlation numbers.

The above-mentioned four stocks combined make up 19.5% of the fluctuations in the VanEck Vectors Gold Miners ETF (GDX).

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