uploads/2017/03/CORRELATION-6-1.png

Analyzing the Correlation Trends of Mining Stocks

By

Updated

Mining stocks and gold

The uncertainty of the markets not only closely impacts precious metals, but also precious metal mining stocks. These stocks are known to carefully track the performance of precious metals. Mining stocks are closely coordinated with the precious metals they mine rather than the equity markets in general.

The buoyancy of precious metals could be challenged even more by possible future interest rate hikes, which could cause mining stocks to fall. Mining companies that have high correlations with gold include Sibanye Gold (SBGL), Gold Fields (GFI), Agnico-Eagle Mines (AEM), and Primero Mining (PPP). Mining stocks have been falling over the past few weeks due to the weakness in precious metals.

Article continues below advertisement

Correlation trends

While all the above stocks are closely related to precious metals, Gold Fields has the highest correlation to gold year-to-date. Sibanye Gold, however, has a negative correlation to gold.

Over the past three years, Sibanye Gold, Gold Fields, and Primero Mining have seen upward-trending correlations to gold. For Agnico-Eagle Mines, the correlation trend is not very stable.

Gold Fields’ correlation has risen from a ~0.70 three-year correlation to an ~0.80 one-year correlation. A correlation of ~0.80 means that about 80.0% of the time, Gold Fields has moved in the same direction as gold in the last year. Usually, a rise in precious metals leads to a rise in mining stocks, and vice versa.

ETFs that closely track the performances of mining stocks include the iShares MSCI Global Gold Miners (RING) and the VanEck Vectors Junior Gold Miners ETF (GDXJ).

Advertisement

More From Market Realist