Do Miners Have an Upward or a Downward Correlation with Gold?


Sep. 8 2016, Published 1:29 p.m. ET

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 with respect to their peers. Lately, precious metals’ prices have been slowly falling. Because of this, miners have also seen falls.

Mining companies that have high correlations with gold include New Gold (NGD), Newmont Mining (NEM), Sibanye Gold (SBGL), and Gold Fields (GFI). On a YTD (year-to-date) basis, these stocks have risen by 125.4%, 133.9%, 164.5%, and 102.5%, respectively.

The substantial returns seen by most mining companies came about thanks to the safe-haven bids that boosted gold and other precious metals. However, demand for these miners 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 table above, New Gold is the most correlated with gold among the four stocks under review on a YTD basis. Gold Fields is the least correlated with gold, mostly due to its YTD losses.

Among the above-mentioned gold miners, Sibanye Gold has seen its correlation with gold rise. The correlation rose from a ~0.47 three-year correlation to a ~0.56 one-year correlation. A correlation of ~0.56 suggests that about 56% of the time, Sibanye has moved in the same direction as gold in the past year.

A fall in gold leads to falls in the prices of mining shares, and a rise in gold leads to rises in the prices of mining shares. The relationships of the other three miners with gold may not be stable because their correlations see upward and downward movements.

Together, these four stocks make up 13.8% of the VanEck Vectors Gold Miners ETF (GDX).


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