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How Big Miners Are Correlated to Gold

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Aug. 4 2016, Published 6:38 p.m. ET

Mining companies and gold

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

Mining companies that have high correlations to gold include Yamana Gold (AUY), Pan American Silver (PAAS), Coeur Mining (CDE), and Barrick Gold (ABX). On a YTD (year-to-date) basis, these stocks have risen 210.7%, 202.7%, 529.4%, and 203.7%, respectively.

The substantial returns seen by most mining companies were thanks to the same safe-haven bids that boosted gold and other precious metals.

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Correlation trends

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

Yamana Gold has seen its correlations to gold rise. The correlation increased from a 0.55 three-year correlation to a 0.59 one-year correlation. A correlation of 0.59 suggests that about 59% of the time, Yamana Gold changed in the same direction as gold over the past year. A fall in gold leads to a fall in the price of mining shares. A rise in gold leads to an increase in mining stocks.

The relationships of other miners with gold haven’t been stable over the past three years. It could be that silver mining companies don’t track gold as precisely as gold mining companies because their correlations have seen upward and downward movements.

Together, these four stocks make up 13% of the VanEck Vectors Gold Miners ETF (GDX).

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