How Closely Are the Miners Correlated to Gold?



Correlation with gold

The precious metal market has skyrocketed in 2016. Despite the overall 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 a high correlation with gold include Alamos Gold (AGI), B2Gold (BTG), Royal Gold (RGLD), and Goldcorp (GG). On a YTD (year-to-date) basis, these four stocks have risen by 187.2%, 190.2%, 123.4%, and 68%, 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. These are due to the reduced positive sentiment for gold as the Brexit vote tremors fade. Also, geopolitical events such as the terrorist attack in France and the Turkey military coup attempt failed to raise the safe-haven bids for gold substantially.

Correlation trends

As you can see in the above chart, B2Gold is the most correlated with gold among the four stocks on a YTD basis, whereas Royal Gold is the least correlated to gold. Alamos Gold’s and B2Gold’s correlation figures have increased over the past three years. For Alamos Gold, it rose from a 50.6% three-year correlation to a 57% YTD correlation. For B2Gold, it rose from a three-year correlation of 52.7% to 58.4% YTD. A correlation of 58.4% suggests that about 58% of the time, B2Gold will change in the same direction with gold. A fall in gold leads to a fall in B2Gold, and a rise in gold leads to a rise in B2Gold.

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 14.4% of the VanEck Vectors Gold Miners ETF (GDX).


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