Reading the Correlation Movement of Mining Stocks

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 Sibanye Gold (SBGL), Gold Fields (GFI), 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, Sibanye 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.

Coeur Mining, which had the lowest YTD correlation to gold, and Sibanye Gold have seen their correlations to gold rise over the last three years. Sibanye Gold’s correlation rose from a ~0.51 three-year correlation to a ~0.78 YTD correlation. A correlation of ~0.78 suggests that about 78.0% of the time, Sibanye Gold moved in the same direction as gold in the last year. Usually, a fall in gold leads to falling mining stock prices, and vice versa.

Gold’s relationships to Gold Fields and Pan American haven’t been stable and have 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 iShares MSCI Global Gold Miners (RING).