Senior gold miners
Senior gold miners are large miners with established positions. They’re usually less risky, with highly liquid stocks. While there are variations between different miners, as a group, they usually follow gold prices.
Among all the sub-categories of precious metals miners, senior gold miners have the strongest correlation with gold prices, at 0.96 from 2013 until the present.
Even YTD (year-to-date) as of September 21, 2016, these companies have closely followed gold prices, with a correlation of 0.94. Because they’re large, stable entities, they tend to amplify gold’s price movements.
That said, depending on their operating and financial leverages and other company specific issues, these senior miners’ performances have diverged from those of gold and other precious metals.
Barrick Gold (ABX), Newmont Mining (NEM), Goldcorp (GG), and Kinross Gold (KGC) make up a substantial 29% of the VanEck Vectors Gold Miners ETF’s (GDX) asset holdings. All except Goldcorp have outperformed the broader gold miners index.
Barrick, Kinross, and Newmont have risen 141%, 137%, and 123%, respectively, YTD. Goldcorp has risen just 42%. Operating issues and a guidance downgrade were the reasons behind Goldcorp’s underperformance. Overall, however, senior gold miners have outperformed.
In the same time period, GDX and gold prices (GLD) have risen 98% and 24%, respectively. Note that the iShares MSCI Global Gold Miners ETF (RING) represents an alternative way of investing in gold miners.
Barrick and Kinross are more leveraged
Barrick Gold and Kinross Gold are more leveraged to gold prices than other senior miners are, mainly because of Barrick’s high financial leverage and Kinross’s operational leverage. For an in-depth discussion on this outperformance, check out Why Did Barrick and Kinross Outperform the Senior Gold Peers?
When gold prices were falling in 2015, Kinross fell 35.5% compared to gold’s 11% fall, underperforming its peers. Investors who want to play on leverage to benefit from gold price gains may want to bet on these stocks. Investors, however, may want to perform a more detailed fundamental analysis of these stocks. Please refer to our discussions on Barrick’s and Kinross’s fundamentals.
Investors should also note that while Goldcorp currently offers lower leverage to gold prices, most of its fundamentals are in place, making it an attractive long-term bet.
Also read, Are Senior Gold Miners Skilled at Handling Market Volatility? to gain more insight into individual senior miners and the market sentiment around them.
Now let’s take a look at intermediate gold miners and their performances compared to gold and other gold miners.