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How Are Mining Stocks Correlated to Gold?

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Feb. 6 2017, Published 9:29 a.m. ET

Mining stocks and gold

It’s important to understand which mining stocks have overperformed and underperformed precious metals. Precious metal 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 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. Mining companies often amplify precious metals’ returns. However, the past few weeks have been choppy for these companies.

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Correlation trends

As you can see in the above table, Yamana Gold has the closest correlation to gold on a YTD basis among the four miners under review. Coeur Mining is the least correlated with gold, mainly due to its YTD losses.

Yamana Gold saw its correlation to gold rise. It rose from a ~0.58 three-year correlation to a ~0.64 one-year correlation. A correlation of ~0.64 suggests that about 64.0% of the time, Yamana Gold 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.

The relationship between gold and Pan American Silver hasn’t been stable and has seen an upward-downward trend.

Mining funds that have an apparent correlation to the fluctuations in precious metals include the VanEck Vectors Gold Miners ETF (GDX) and the Global X Silver Miners ETF (SIL).

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