The correlation of miners to gold
The precious metal market has skyrocketed in 2016. However, the strength of the labor market has weakened an otherwise strong precious metals market. Most mining shares had a down day on Friday, August 12, 2016.
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 GoldCorp (GG), Newmont Mining (NEM), Agnico Eagle Mines (AEM), and Silver Wheaton (SLW). These four stocks rose 63.3%, 151.1%, 122.5%, and 145.3%, 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, Agnico Eagle Mines is the most correlated with gold among the four stocks on a YTD basis. Silver Wheaton is the least correlated to gold.
GoldCorp has seen its correlation to gold rise, increasing 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, GoldCorp 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 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 22.7% of the VanEck Vectors Gold Miners ETF (GDX). GDX has risen about 126.0% YTD.