Miners’ correlations with precious metals
Amid the turbulence in the market, precious metals rose, but there was only a small positive impact on mining shares. For investors interested in parking their money in mining stocks, it’s crucial to understand which stocks are closely tied to precious metals and which ones are not.
Stocks with higher correlations to precious metals will likely be more affected by the global indicators that influence precious metals.
Precious metal–based funds such as the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV) have seen significant correlations with their respective precious metals—gold and silver, respectively. These two funds closely track the performances of each of their metals. IAU and SLV have risen 0.42% and 3.8%, respectively, during the past five trading days.
Among the four miners mentioned above, Pan American has the lowest correlation with gold. Yamana has the highest correlation with gold.
Over the past three years, only Barrick Gold and Yamana have seen upward correlations with gold. The other two have seen mixed trends in their correlations. Studying the upward and downward trends is important, as the price change predictability can be affected as precious metal prices rise and fall.
Yamana Gold’s correlation with gold has risen from a three-year correlation of ~0.74 to a one-year correlation of ~0.80. A correlation of ~0.80 means that ~80.0% of the time, Yamana Gold has moved in the same direction as gold in the last year.