What Are the Correlations of Mining Stocks with Gold?



Mining stocks and gold

Precious metals were doing well at the beginning of 2016. It’s important to know which mining stocks overperformed or 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 YTD (year-to-date). Mining companies often amplify precious metals’ returns. However, the past few weeks have been choppy for these mining companies.

The mining funds that have recovered their gains during the past few weeks due to the recovery of precious metals include the Sprott Gold Miners ETF (SGDM) and the iShares MSCI Gold Miners ETF (RING).

Most mining companies’ substantial returns have been due to safe-haven bids boosting gold and other precious metals. However, the demand for these mining companies seems to be in danger due to the recent falls in precious metals prices.

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Correlation trends

As we can see in the chart above, Kinross Gold 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 Gold and Hecla Mining have seen their correlations with gold rise. Kinross’s correlation has risen 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 in the last year. Usually, a fall in gold leads to falls in the prices of mining stocks, and vice versa.

In comparison, the relationships between gold and Buenaventura and gold and AngloGold haven’t been stable.

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


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