The correlation of miners to gold
The precious metal market has skyrocketed in 2016. However, the possibility of an interest rate hike is making precious metals lose their allure. Most mining stocks fell on Tuesday, August 23, 2016, despite the gains in metals.
It’s crucial for investors to know which mining stocks are overperforming and which are underperforming their peers in order to shortlist the upstream and downstream stocks. In this part of the series, we’ll mainly look at precious metal miners and their correlations to gold.
Miners that have high correlations to gold include Barrick Gold (ABX), AngloGold Ashanti (AU), Hecla Mining (HL), and Kinross Gold (KGC). These four stocks have risen 172.2%, 156.4%, 234.9%, and 159.3%, respectively, YTD (year-to-date). The substantial returns for most miners are due to the same safe-haven bids that have boosted gold and other precious metals.
As you can see in the above table, Kinross Gold is the most correlated with gold among the four stocks on a YTD basis. Hecla is the least correlated to gold.
Kinross, Hecla, and AngloGold have seen their correlations to gold rise. Kinross’s correlation increased from a 0.53 three-year correlation to a 0.60 YTD correlation. A correlation of 0.60 suggests that about 60% of the time, Kinross Gold changed in the same direction as gold over the past year. A fall in gold leads to a decline in the price of mining shares. A rise in gold leads to an increase in mining stocks.
The relationship of Barrick Gold with gold hasn’t been stable over the past three years. The correlation has seen upward and downward movements.
Together, these four stocks make up 15.7% of the VanEck Vectors Gold Miners ETF (GDX).