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Which Miners Have a Strong Correlation to Gold?

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Mining companies and gold

Precious metals saw some good news as 2016 started. However, it’s important to know which mining stocks are overperforming and which 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 Primero Mining (PPP), Silver Wheaton (SLW), Franco-Nevada (FNV), and RandGold Resources (GOLD). These companies have risen significantly year-to-date (or YTD). Mining companies often amplify the returns of precious metals.

The substantial returns for most mining companies have been 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, RandGold is the most correlated with gold on a YTD basis among the four stocks we’ve mentioned. Primero Mining is the least correlated with gold, mainly due to its YTD losses.

RandGold, Silver Wheaton, and Franco-Nevada saw their correlations with gold rise. RandGold’s correlation rose from an ~0.61 three-year correlation to an ~0.68 one-year correlation. A correlation of ~0.68 suggests that about 68% of the time, RandGold has moved in the same direction as gold in the past year.

The relationship between Primero Mining and gold may not be stable because their correlations see upward and downward movements. A fall in gold generally leads to a decline in the prices of mining stocks, while a rise in gold generally leads to an increase in those stocks.

The leveraged mining funds such as the Direxion Daily Gold Miners ETF (NUGT) and the ProShares Ultra Silver ETF (AGQ) have also fallen due to the decline in precious metals.

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