Reading Upward and Downward Trends in Gold Correlation



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

Mining companies that have high correlations with gold include Alamos Gold (AGI), First Majestic Silver (AG), B2Gold (BTG), and Royal Gold (RGLD). On a YTD (year-to-date) basis, these stocks have seen substantial returns, but the past few months weren’t beneficial. Mining companies are often known to amplify precious metals’ returns.

Most mining companies’ substantial returns have come about due to safe-haven bids that have boosted gold and other precious metals. However, the demand for these miners seems to be in danger due to the recent fall in precious metals prices.

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Correlation trends

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

Alamos Gold, B2Gold, and First Majestic saw their correlations with gold rise. Alamos Gold’s correlation with gold rose from a ~0.50 three-year correlation to a ~0.58 one-year correlation. A correlation of ~0.58 suggests that Alamos Gold has moved in the same direction as gold about 58% of the time in the past year.

A fall in gold tends to cause mining stocks’ prices to fall, and a rise in gold tends to lead to rises in mining stocks’ prices. Royal Gold’s relationship with gold may not be stable, as its correlation has seen upward and downward movements.

Together, these four stocks make up 7.7% of the VanEck Vectors Gold Miners ETF (GDX).


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