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How Closely Are Miners Correlated to Gold?

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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 Sibanye Gold (SBGL), Gold Fields (GFI), and Agnico Eagle Mines (AEM). On a YTD (year-to-date) basis, these stocks have risen by 189.1%, 114.4%, and 102.5%, respectively. These substantial returns are most likely due to the same safe-haven bids that boosted gold and other precious metals. Primero Mining (PPP), however, has lost approximately 1.8%.

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The miners’ profits have been reduced over the past few weeks. This is 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 military coup attempt in Turkey failed to raise the safe-haven bids for gold substantially.

Correlation trends

As you can see in the above chart, Agnico Eagle Mines is the most correlated with gold among the four stocks on a YTD basis, whereas Primero Mining is the least correlated to gold. Primero Mining has posted a YTD loss, while gold has risen about 25% YTD.

Sibanye Gold’s correlation to gold has increased over the past three years. The company’s correlation has increased from a 47.6% three-year correlation to a 57.1% YTD correlation. The correlation indicates that Sibanye Gold changed in the same direction with gold about 57% of the time.

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

Together, the above four stocks make up 11.8% of the VanEck Vectors Gold Miners ETF (GDX).

In the final part of this series, we’ll discuss the performance of precious metal miners.

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