Miners’ Upstream and Downstream Correlation


Dec. 12 2016, Published 12:28 p.m. ET

Mining stocks and gold

Precious metals were doing well at the beginning of 2016. However, it’s also important to know which mining stocks overperformed and which ones underperformed precious metals. Precious 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 with gold include Cia De Minas Buenaventura (BVN), AngloGold Ashanti (AU), Hecla Mining (HL), and Kinross Gold (KGC). These companies have risen significantly YTD (year-to-date). Mining companies often amplify precious metals’ returns. However, the past few weeks have been choppy for these mining companies.

Most mining companies’ substantial returns 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, Kinross is the most correlated with gold on a YTD basis among the four stocks under review. Cia De Minas is the least correlated with gold, mainly due to its YTD losses.

Kinross and Hecla saw their correlations with gold rise. Kinross’s correlation rose from an ~0.55 three-year correlation to an ~0.61 one-year correlation. A correlation of ~0.61 suggests that about 61% of the time, Kinross moved in the same direction as gold in the last year. Usually, 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.

The relationship between gold and Cia De Minas or AngloGold hasn’t been stable because their correlations see upward and downward movements.

Leveraged mining funds such as the Direxion Daily Gold Miners (NUGT) and the ProShares Ultra Silver (AGQ) fell due to the decline in precious metals.


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