Mining companies’ correlations with precious metals
Amid the recent turbulence in markets, precious metals have begun to rise, but we’ve only seen the slightest positive impact on mining shares. And 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 aren’t.
Stocks with higher correlations to precious metals will likely be even more affected by the global indicators that influence precious metals themselves.
Precious metal-based funds such as the Physical Silver Shares (SIVR) and Physical Swiss Gold Shares (SGOL) have also seen significant correlations with their respective precious metals, gold and silver.
Among our select group of four miners, Sibanye has the lowest correlation with gold, and Gold Fields has the highest correlation with gold.
Over the past three years, only Primero, Sibanye, and Gold Fields have seen upward correlations with gold, whereas Agnico has seen downward trends in their correlations. Studying upward and downward trends is important in any investment strategy, and price change predictability can be affected as precious metal prices rise and fall.
Gold Fields’ correlation with gold has risen from a three-year correlation of ~0.77 to a one-year correlation of ~0.80. A correlation of ~0.80 means that ~80.0% of the time, Gold Fields has moved in the same direction as gold over the past year.
Now let’s take a more detailed look at how these major mining companies have been performing recently.