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Reading the Correlation Trends among Miners

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Mining companies and gold

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

Mining companies that have high correlations with gold include New Gold (NGD), Sibanye Gold (SBGL), Gold Fields (GFI), and Agnico-Eagle Mines (AEM). On a YTD (year-to-date) basis, these stocks have risen by 115.5%, 176.2%, 109.4%, and 99.5%, respectively. The substantial returns seen by most mining companies were due to safe-haven bids, which boosted gold and other precious metals.

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Correlation trends

As you can see in the above table, Agnico-Eagle is the most correlated with gold YTD, while Gold Fields is the least correlated with gold.

All of the gold miners listed above except for Agnico-Eagle and Sibanye have seen their correlations with gold rise. Gold’s correlation with Agnico-Eagle has risen from a 0.59 three-year correlation to a 0.64 one-year correlation. A correlation of 0.64 suggests that about 64% of the time, Agnico-Eagle has moved in the same direction as gold in the past year. A fall in gold leads to falls in mining stocks’ prices. A rise in gold leads to rises in mining stocks’ prices.

New Gold and Gold Field’s relationship with gold may not be stable, because their correlations see upward and downward movements.

Together, the four stocks mentioned above account for 13.3% of the VanEck Vectors Gold Miners ETF (GDX).

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