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Inside the Upward-Downward Trend in Gold Correlations

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Mining stocks and gold

It’s important to understand which mining stocks have overperformed or underperformed precious metals. Precious metal prices began falling after Donald Trump won the US Presidential election on November 8, 2016. As a result, mining stocks also started tumbling.

Mining companies that have high correlations with gold include Harmony Gold (HMY), Hecla Mining (HL), New Gold (NGD), and Newmont Mining (NEM). These companies rose significantly in 2016, and they began 2017 with a price revival. Mining companies often amplify precious metals’ returns. However, the past few weeks have been choppy for mining companies.

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Correlation trends

As you can see in the above table, Harmony Gold is the most correlated with gold on a YTD (year-to-date) basis among the four stocks under review. Hecla Mining is the least correlated with gold, mainly due to its YTD losses.

All four mining stocks have witnessed a higher two-year correlation than their three-year or one-year correlations. Harmony Gold has a two-year correlation of ~0.55, which means that about 55.0% of the time, Harmony Gold moved in the same direction as gold in the past year. Usually, a fall in gold leads to falls in the prices of mining stocks, and vice versa.

The relationships among these mining stocks haven’t been stable and have seen upward and downward trends.

Precious metal mining shares that closely correlate with miners as well as with precious metals include the Sprott Gold Miners ETF (SGDM) and the Global X Silver Miners Fund (SIL). These two ETFs have risen 8.9% and 7.4%, respectively, YTD.

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