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How Mining Stocks Correlate with Gold

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Mar. 2 2017, Updated 12:35 p.m. ET

Mining stocks and gold

It’s important to understand which mining stocks have overperformed and which have underperformed precious metals. Precious metal prices have risen due to the uncertainty that has arisen since Donald Trump was inaugurated as US president. The buoyancy of precious metals could further be challenged by future interest rate hikes, which could also cause mining stocks to fall.

Mining companies that have high correlations with gold include Alamos Gold (AGI), First Majestic Silver (AG), B2Gold (BTG), and Royal Gold (RGLD). These companies rose significantly in 2016, and they’ve seen strong starts in 2017. Although mining companies often amplify the returns of precious metals, they’ve seen downturns in the past week.

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Correlation trends

While all of the stocks mentioned above are closely related to precious metals, Alamos Gold has the highest correlation with gold year-to-date among the miners under discussion. B2Gold is the least correlated with gold.

Over the past three years, Alamos has seen an upward-trending correlation with gold. The correlations of B2Gold, First Majestic, and Royal Gold have trended both upward and downward.

Alamos’s correlation has risen from a ~0.55 three-year correlation to a ~0.60 one-year correlation. A correlation of ~0.60 means that about 60% of the time, AngloGold Ashanti has moved in the same direction as gold in the last year. Usually, a fall in gold leads to falls in mining stocks.

Some ETFs that have high correlations with precious metals include the Sprott Gold Miners (SGDM) and the Physical Silver Shares (SIVR).

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