Understanding Miners’ Correlation with Gold



Correlation with gold

As we know, the precious metal market has skyrocketed in 2016. However, it’s crucial for investors to know which mining stocks are overperforming or underperforming their peers, to shortlist the upstream and downstream stocks.

Precious metal mining shares that have a high correlation with gold include Agnico-Eagle Mines (AEM), Silver Wheaton (SLW), Barrick Gold (ABX), and Kinross Gold (KGC). YTD (year-to-date), these four stocks have risen by 106.6%, 104.6%, 179.4%, and 191.8%, respectively. These substantial returns are most likely due to the same safe-haven bids that boosted gold and other precious metals.

Most mining companies have seen losses over the past few days. These are due to the reduced positive sentiment for gold as the Brexit tremors fade.

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Uptrends or downtrends in correlation

As you can see in the above chart, Agnico-Eagle is the most correlated with gold among the four stocks YTD. Kinross’s correlation with gold has increased over the past three years. While it had a 53.4% correlation three years ago, it has a YTD correlation of 58.4%.

The relationships of the other three miners with gold haven’t been stable over the past three years. The correlation has seen upward and downward momentum. If a miner has a high correlation with gold, it means that the changes in its price are closely related to gold price movements.

Together, these four stocks make up 19.6% of the fluctuations in the VanEck Vectors Gold Miners ETF (GDX). GDX has risen by 13.5% on a 30-day trailing basis.


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