How Are Miners and Gold Correlated?

Precious metals were doing well at the beginning of 2016. However, it’s important to know which mining stocks overperformed and which ones underperformed precious metals. Metal prices have been falling since Donald Trump won the US presidential election on November 8, 2016. As a result, mining stocks have also been falling.

Mining companies that have high correlations to gold include Royal Gold (RGLD), Goldcorp (GG), New Gold (NGD), and Newmont Mining (NEM). These companies have risen significantly YTD (year-to-date). Mining companies often amplify the returns of precious metals. However, the past few weeks have been choppy for these mining companies.

The substantial returns of 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.

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

Goldcorp, New Gold, and Newmont saw their correlations with gold rise. Goldcorp’s correlation rose from an ~0.61 three-year correlation to an ~0.64 one-year correlation. A correlation of ~0.64 suggests that about 64.0% of the time, Goldcorp moved in the same direction as gold in the last year.

The relationship between Royal Gold and gold may not be stable because their correlations see upward and downward movements. A fall in gold leads to falls in the prices of mining stocks, while a rise in gold leads to increases in mining share prices.

Leveraged mining funds such as the Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG) and the ProShares Ultra Silver (AGQ) have fallen due to the fall in precious metals.