Upward and Downward Trends in Miner’s Correlation 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. As a result, mining stocks have also fallen.

Mining companies that have high correlations with gold include Agnico-Eagle Mines (AEM), Silver Wheaton (SLW), and Franco-Nevada (FNV). On a YTD (year-to-date) basis, these stocks have risen 98.9%, 115.5%, and 55.6%, respectively. Mining companies are often known to amplify precious metals’ returns. However, Primero Mining (PPP) had a YTD loss of 27.6%.

Most mining companies’ substantial returns have come about due to safe-haven bids that boosted gold and other precious metals. However, the 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, Agnico-Eagle is the most correlated with gold on a YTD basis among the four stocks under review. Primero Mining is the least correlated with gold, mostly due to its YTD losses.

Agnico-Eagle and Franco-Nevada saw their correlations with gold rise. Agnico-Eagle’s correlation rose from an ~0.59 three-year correlation to an ~0.64 one-year correlation. A correlation of ~0.64 suggests that about 64% of the time, Agnico-Eagle has moved in the same direction as gold in the past year.

A fall in gold causes mining stocks’ prices to fall. A rise in gold leads to increases in mining stocks’ prices. 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 15.4% of the VanEck Vectors Gold Miners ETF (GDX).


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