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The Correlations of Mining Stocks in 2016

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Mining stocks and gold

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

The substantial returns of most mining companies have been the result of safe-haven bids that boosted gold and other precious metals. However, the demand for these mining companies seems to be in danger due to recent falls in precious metals prices.

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Correlation trends

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

Kinross and Hecla have seen their correlations with the gold rise. Kinross’s correlation rose from a ~0.55 three-year correlation to a ~0.61 one-year correlation. A correlation of ~0.61 suggests that about 61% of the time, Kinross has moved in the same direction as gold over the last year. Usually, a fall in gold leads to falls in the prices of mining stocks, while a rise in gold leads to rises in the prices of mining stocks.

The relationship between gold and Buenaventura and AngloGold hasn’t been stable, as their correlations have seen both upward and downward movements.

Mining funds such as the VanEck Vectors Junior Gold Miners ETF (GDXJ) and the iShares MSCI Gold ETF (RING) have fallen due to falls in precious metals.

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