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Assessing Mining Companies’ Recent Correlations with Gold

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Mining companies and gold

Precious metals had a great start to 2016, but lately, their prices have been falling slowly. As a result, mining stocks have also been falling. It’s important to know which mining stocks are overperforming and which are underperforming precious metals.

Mining companies that have high correlations with gold include Alamos Gold (AGI), First Majestic Silver (AG), B2Gold (BTG), and Royal Gold (RGLD). These companies have risen significantly year-to-date (or YTD). Although Donald Trump’s victory in the US presidential election was initially profitable for precious metals, they quickly started falling.

The substantial returns of most mining companies have been due to safe-haven bids, which boosted gold and other precious metals.

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Correlation trends

As we can see in the table above, Alamos Gold is the most highly correlated with gold on a YTD basis among the four stocks we’ve mentioned. Royal Gold is the least correlated with gold.

Alamos Gold and First Majestic Silver have seen their correlations with gold rise. Alamos Gold’s correlation has risen from a ~0.51 three-year correlation to a ~0.57 one-year correlation. A correlation of ~0.57 suggests that about 57% of the time, Alamos Gold has moved in the same direction as gold in the past year.

The relationships between B2Gold and Royal Gold and gold may not be stable, as their correlations see upward and downward movements. A fall in gold usually leads to falls in the prices of mining stocks, while a rise in gold usually leads to rises in those stocks.

Leveraged mining funds such as the Market Vectors Junior Gold Miners ETF (GDXJ) and the Market Vectors Gold Miners ETF (GDX) have also fallen due to the fall in precious metals.

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