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Behind the Gold and Mining Stock Correlation

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Mining stocks and gold

For investors interested in parking their money in mining shares, it’s crucial to understand which stocks are closely tied to precious metals, and which aren’t. Stocks with higher correlations to precious metals will likely be even more affected by global indicators that influence the precious metals themselves.

Precious metal funds like the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) have also seen significant correlations to their respective precious metals. Echoing gold’s YTD (year-to-date) performance, GLD has risen 7.3%. Similarly, following silver’s performance, SIL has increased 9.2%.

Below, we’ll take a look at the correlation trends of AngloGold Ashanti (AU), Hecla Mining (HL), Kinross (KGC), and Eldorado (EGO).

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Upward and downward trends

AngloGold has the lowest correlation to gold YTD, while Kinross Gold has the highest correlation. Over the past three years, Kinross has seen upward trending correlations to gold, while AngloGold has seen a downward trend in correlation. The other two companies have displayed no particular trend, as their correlations have moved randomly.

Remember, it’s important to study upward and downward trends because they help us predict price changes more easily as we watch precious metals rise and fall.

For example, Kinross Gold’s correlation rose from a three-year correlation of ~0.67 to a one-year correlation of ~0.75. The correlation of ~0.75 means that about 75.0% of the time, Kinross Gold has moved in the same direction as gold over the past year. Notably, a fall in gold usually causes mining stocks to fall, and vice versa.

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