Inside Gold’s Upward and Downward Correlation Trends

It’s important to understand which mining stocks have overperformed and which have underperformed precious metals. Precious metal prices have risen due to uncertainty since Donald Trump won the US presidential election. The buoyancy of precious metals could further be challenged by the future interest rate hike, which could also cause mining stocks to fall.

Mining companies with high correlations to gold include Agnico-Eagle Mines (AEM), Primero Mining (PPP), Silver Wheaton (SLW), and Franco-Nevada (FNV). These companies rose significantly in 2016 and have seen strong YTD (year-to-date) starts to 2017. While mining companies often amplify the returns of precious metals, they’ve had mixed reactions in the past week.

While all of the above stocks are closely related to precious metals, Silver Wheaton has the highest correlation to gold YTD among the four miners. Franco-Nevada is the least correlated to gold.

Over the past three years, Primero Mining and Silver Wheaton have seen upward trending correlations to gold. The correlations of Agnico-Eagle Mines and Franco-Nevada have seen mixed upward and downward movements.

The correlation of Silver Wheaton rose from a ~0.70 three-year correlation to a one-year correlation of ~0.81. A correlation of ~0.81 suggests that about 81.0% of the time, Silver Wheaton has moved in the same direction as gold in the last year. Usually, a fall in gold leads to falling mining stocks and vice versa.

The funds that also have a high correlation to the changes in precious metals include Physical Swiss Gold Shares (SGOL) and Physical Silver Shares (SIVR).