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The Upward and Downward Trends and the Correlation to Miners

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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 ones are underperforming precious metals. Lately, precious metal prices have been declining slowly. As a result, mining stocks have also fallen.

Mining companies that have high correlations with gold include Yamana Gold (AUY), Pan American Silver (PAAS), Coeur Mining (CDE), and Buenaventura Mining (BVN). On a YTD (year-to-date) basis, these stocks have risen 148.4%, 182.8%, 432.3%, and 245%, respectively. Mining companies are often known to amplify the returns of precious metals.

The substantial returns of most mining companies have come about due 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 metal prices.

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Correlation trends

As you can see in the above table, Coeur Mining is the most correlated with gold on a YTD basis among the four stocks under review. Buenaventura Mining is the least correlated with gold, mostly due to its YTD losses.

Yamana Gold and Pan American Silver have seen their correlations with gold rise. Yamana’s correlation has increased from a ~0.53 three-year correlation to a ~0.59 one-year correlation. A correlation of ~0.59 suggests that about 59% of the time, Yamana has moved in the same direction as gold in the past year.

A fall in gold leads to falls in the prices of mining stocks. A rise in gold leads to increases in the prices of mining stocks. The relationships of the other two miners with gold may not be stable because their correlations see upward and downward movements.

Together, these four stocks make up 9.6% of the VanEck Vectors Gold Miners ETF (GDX).

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