Inside the Correlation of Mining Companies to Gold



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 ones are underperforming precious metals. Lately, precious metal prices have been falling slowly, and as a result, mining stocks have also fallen.

Mining companies that have high correlations with gold include Sibanye Gold (SBGL), Gold Fields (GFI), Agnico Eagle Mines (AEM), and Primero Mining (PPP). On a YTD (year-to-date) basis, these stocks have risen 254%, 180.4%, 113%, and 36.1%, respectively. Mining companies are often known to amplify the returns of precious metals.

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

Article continues below advertisement

Correlation trends

As you can see in the above table, Agnico Eagle Mines is the most correlated with gold on a YTD basis among the four stocks mentioned above. Primero Mining is the least correlated with gold, probably due to its year-to-date losses.

Agnico Eagle Mines and Sibanye Gold have seen their correlations with gold rise. But Agnico Eagle Mine’s correlation 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 Mines 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 11.8% of the VanEck Vectors Gold Miners ETF (GDX).


More From Market Realist