Mining companies and gold
The precious metal market rose 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 AngloGold Ashanti (AU), Eldorado Gold (EGO), Alacer Gold (ASR), and IamGold (IAG). These companies have seen tremendous YTD (year-to-date) gains. Mining companies are often known to amplify previous metals’ returns.
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 mining companies seems to be in danger due to the recent fall in precious metal prices.
As you can see in the above table, IamGold is the most correlated with gold on a YTD basis among the four stocks mentioned above. Alacer is the least correlated with gold—mainly due to its YTD losses.
AngloGold has seen its correlation with gold rise. AngloGold’s correlation rose from an ~0.56 three-year correlation to an ~0.57 one-year correlation. A correlation of ~0.57 suggests that about 57% of the time, AngloGold has moved in the same direction as gold in the past year.
Remember, a fall in gold leads to a fall in the prices of mining stocks, while a rise in gold leads to an increase in the prices of mining stocks. The relationships of the other two mining companies with gold may not be stable because their correlations see upward and downward movements.
Together, these four stocks make up 10.2% of the VanEck Vectors Gold Miners ETF (GDX).