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Analyzing the Correlation between Miners and Gold

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Correlation with gold

The precious metal market has skyrocketed in 2016. Despite this trend, it’s crucial for investors to know which mining stocks are overperforming or underperforming their peers to short-list the upstream and downstream stocks.

Precious metal mining shares that have high correlations with gold include Alamos Gold (AGI), First Majestic Silver (AG), B2Gold (BTG), and Royal Gold (RGLD). On a YTD (year-to-date) basis, these four stocks have risen 165.4%, 376.8%, 175.5%, and 117.5%, respectively. These substantial returns are most likely due to the same safe-haven bids that boosted gold and other precious metals.

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Most mining companies have seen losses over the past few days. This is due to the reduced positive sentiment for gold as tremors over the Brexit vote subside. Also, geopolitical events such as the terrorist attack in France and the military coup attempt in Turkey failed to raise safe-haven bids for gold substantially.

Correlation trends

As you can see in the above table, B2Gold is the most correlated with gold among the four stocks on a YTD basis. Royal Gold is the least correlated to gold.

B2Gold and Alamos Gold have seen their correlations to gold rise. For B2Gold, the correlation rose from a 50.6% three-year correlation to a 56.3% one-year correlation. A correlation of 56.3% suggests that about 56% of the time, B2Gold changed in the same direction as gold over the past year. A fall in gold leads to a drop in the price of mining shares, and a rise in gold leads to a rise of mining shares.

The relationships of the other two miners with gold haven’t been stable over the past three years. The correlation has seen upward and downward movements.

Together, these four stocks make up 7.7% of the VanEck Vectors Gold Miners ETF (GDX).

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