uploads///CORRELATION

The Correlation of Gold and Mining Stocks

By

Updated

Gold and mining stocks

Precious metals were doing well at the beginning of 2016. It’s important to know which mining stocks overperformed and which ones underperformed precious metals. Prices for precious metals 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 Mining (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.

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 metal prices.

Article continues below advertisement

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 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 61.0% 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. A rise in gold leads to rises in the prices of mining stocks.

The relationship of gold with Buenaventura and AngloGold hasn’t been stable. 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 Global Gold Miners (RING) have fallen due to falling precious metal prices.

Advertisement

More From Market Realist