Reading Upward, Downward Trends in Miners’ Correlations to Gold



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 Kinross Gold (KGC), Eldorado Gold (EGO), Alacer Gold (ASR), and IAMGOLD (IAG). On a YTD (year-to-date) basis, these stocks have risen 128%, 17.8%, 25%, and 175.4%, respectively. Mining companies are often known to amplify the returns of precious metals.

The substantial returns of most mining companies have come about thanks to 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, Kinross Gold is the most correlated with gold on a YTD basis among the four stocks under review. Alacer is the least correlated with gold, mostly due to its YTD losses.

Among the above-mentioned gold miners, Kinross Gold has seen its correlation with gold rise. Its correlation has risen from a ~0.53 three-year correlation to a ~0.6 one-year correlation. A correlation of ~0.6 suggests that about 60% of the time, Kinross 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 6.6% of the VanEck Vectors Gold Miners ETF (GDX). GDX has seen a YTD rise of 131.3%.


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