Analyzing the Upward-Downward Correlation of Precious Metals

It’s important to understand which mining stocks have overperformed and underperformed precious metals. Precious metal prices have risen since their ten-month lows in December 2016. As a result, most mining stocks have also risen substantially since then.

Mining companies with high correlations to gold include Randgold Resources (GOLD), Yamana Gold (AUY), Pan American Silver (PAAS), and Coeur Mining (CDE). These companies rose significantly YTD (year-to-date) in 2016, and 2017 started with a price revival.

As you can see in the above table, Yamana Gold has the closest correlation to gold on a one-year basis among the four miners under review. Pan American Silver is the least correlated with gold.

Coeur Mining, Yamana Gold, and Randgold Resources have seen their correlations to gold rise over the last three years. Coeur Mining’s correlation rose from a ~0.64 three-year correlation to a ~0.70 one-year correlation. A correlation of ~0.70 suggests that about 70.0% of the time, Coeur Mining moved in the same direction as gold. Usually, a fall in gold leads to falling mining stock prices, and vice versa.

Gold’s relationship to Pan American Silver hasn’t been stable and has seen an upward-downward trend. Mining funds that have a visible correlation to the fluctuations in precious metals include the ProShares Ultra Silver (AGQ) and the Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG).