Miners’ correlations to gold
The precious metal market has skyrocketed in 2016. However, the strength of the labor markets shed some weakness in the otherwise stronger precious metals. Most of the mining shares saw a down day on Friday.
It’s crucial for investors to know which mining stocks are overperforming and underperforming their peers 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 Silver Wheaton (SLW), Cia de Minas Buenaventura (BVN), and AngloGold Ashanti (AU). These three stocks rose 139.4%, 253.5%, and 205.2%, respectively, YTD (year-to-date). However, Primero Mining (PPP) has seen a YTD loss of 20.7%. The substantial returns for most miners are due to the same safe-haven bids that boosted gold and other precious metals.
As you can see in the above table, Silver Wheaton is the most correlated with gold among the four stocks on a YTD basis, while Primero is the least correlated to gold.
AngloGold Ashanti has seen its correlations to gold rise. The correlation for AngloGold increased from a 0.55 three-year correlation to a 0.58 one-year correlation. A correlation of 0.58 suggests that about 58% of the time, AngloGold changed in the same direction as gold over the past year. A fall in gold leads to a drop in the price of mining shares. A rise in gold leads to an increase in mining stocks.
The relationship of the other three miners 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 13.3% of the VanEck Vectors Gold Miners ETF (GDX). GDX also has a YTD gain of 124.2%