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Understanding Mining Companies’ Correlation to Gold

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Correlation with gold

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

Precious metal mining shares that have a high correlation with gold include Agnico-Eagle Mines (AEM), Alamos Gold (AGI), Hecla Mining (HL), and Randgold Resources (GOLD). These four stocks have seen YTD (year-to-date) gains of 91.1%, 137.1%, 138.1%, and 53.2%, respectively. These substantial returns since the beginning of 2016 are most likely due to the same safe-haven bids that have lifted up gold and other precious metals.

Notably, these four companies witnessed tremendous gains last week (ending June 17) due to the revival in positive sentiment for gold.

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Uptrends or downtrends in correlation

As seen in the above chart, the correlation for Randgold Resources is at its highest YTD. Randgold has also seen increasing correlation with gold during the past three years. From its 58.2% correlation three years ago, it now has a YTD correlation of 68.5%.

The relationship of Agnico Gold and Hecla Mining with gold has not been stable over the past three years, and we’ve seen upward and downward momentum in the correlation numbers. Alamos Gold, like Randgold, has had a stable upward streaming correlation with gold.

These four stocks together make up 12.1% of the fluctuations in the VanEck Vectors Gold Miners Fund (GDX). GDX has surged by a whopping 88% YTD.

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