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What Are Mining Companies’ Correlation Trends?

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

Mining companies that have a high correlation with gold include New Gold (NGD), Newmont Mining (NEM), Alacer Gold (ASR), and IamGold (IAG). These companies have seen tremendous YTD (year-to-date) gains. Mining companies are often known to amplify precious 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.

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Correlation trends

As you can see in the above table, New Gold 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.

New Gold, Newmont, and IamGold saw their correlation with gold rise. IamGold’s correlation rose from an ~0.55 three-year correlation to an ~0.58 one-year correlation. A correlation of ~0.58 suggests that about 58% of the time, IamGold moved in the same direction as gold in the past year.

Remember, a fall in gold leads to a decline in mining stocks’ prices, while a rise in gold leads to an increase in mining stocks’ prices. The relationships of the other two mining companies with gold may not be stable because their correlations see upward and downward movements.

Mining funds like the Sprott Gold Miners (SGDM) and the SPDR S&P Metals and Mining ETF (XME) suffered losses because of damage in precious metals.

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