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Analyzing Trends in Miners’ Correlations with Gold

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Mining companies and gold

The precious metals market has skyrocketed in 2016. Despite this trend, it’s important to know which mining stocks are overperforming and which are underperforming precious metals. Lately, precious metals prices have been falling slowly, and as a result, mining stocks have also fallen.

Mining companies that have high correlations with gold include Alamos Gold (AGI), GoldCorp (GG), New Gold (NGD), and Newmont Mining (NEM). On a YTD (year-to-date) basis, these stocks have seen considerable rises, thanks to haven bids for precious metals. Mining companies are often known to amplify the returns of precious metals.

The substantial returns of most mining companies are due to the store-of-value feature that has boosted gold and other precious metals. However, demand for these mining companies seems to be in danger due to the recent fall in precious metals prices.

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Correlation trends

As you can see in the above table, Alamos Gold is the most correlated with gold on a YTD basis among the four stocks mentioned above. Newmont Mining is the least correlated with gold.

Alamos Gold and GoldCorp have seen their correlations with gold rise. Alamos Gold’s correlation has risen from a ~0.50 three-year correlation to a ~0.57 one-year correlation. A correlation of ~0.57 suggests that about 57% of the time, Alamos Gold has moved in the same direction as gold in the past year.

Remember, a fall in gold leads to falls in the prices of mining stocks, while a rise in gold leads to rises in the prices of mining stocks. The relationships of the other two mining companies with gold may not be stable because their correlations have seen upward and downward movements.

Together, these four stocks make up 15.9% of the VanEck Vectors Gold Miners ETF (GDX).

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