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Mining Correlation Trends: Key Analysis

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Miners’ correlations with precious metals

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 the global indicators that influence precious metals themselves.

Leveraged mining funds such as Direxion Daily Gold Miners (NUGT) and the ProShares Ultra Gold (AGQ) have also seen significant correlations with their respective precious metals. Echoing the precious metal’s rise since the start of the year, these two funds have risen 20.6% and 22.3%, respectively, as of March 24.

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Correlation trends

Among industry peers Alamos Gold (AGI), First Majestic Silver (AG), B2Gold (BTG), Royal Gold (RGLD), Alamos has the lowest correlation with gold, while Royal Gold has the highest correlation with gold. Over the past three years, all four miners have seen downward trends in their correlations to gold. Remember, studying upward and downward trends are important as they can help predict the future movement of mining stocks.

At the same time, price change predictability can be affected as precious metal prices rise and fall. If we look at First Majestic, for example, it’s correlation with gold dropped from a three-year correlation of ~0.71 to a one-year correlation of ~0.65. A correlation of ~0.65 means that ~65.0% of the time, First Majestic has moved in the same direction as gold over the past year.

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