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What’s the Correlation between Mining Stocks and Gold?

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Mining stocks and gold

Uncertainty in the market impacts precious metals and precious metal stocks. Precious metal stocks (SGOL) (SLV) are often more closely synced to precious metals that they mine than to the overall equity market. However, it’s still important to know which mining stocks overperformed and underperformed precious metals.

Precious metals’ buoyancy could be challenged even more by future interest rate hikes, which could cause mining stocks to fall. Mining companies with high correlations to gold include New Gold (NGD), Newmont Mining (NEM), Coeur Mining (CDE), and Barrick Gold (ABX). Although mining companies often amplify precious metals’ returns, these stocks showed mixed performances over the past week.

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Upward and downward trends

Barrick Gold has the lowest correlation to gold YTD (year-to-date), while New Gold has the highest correlation. Over the previous three years, all three miners saw upward trending correlations to gold. It’s important to study the upward and downward trends. The predictability of the price changes is impacted as precious metals rise and fall.

New Gold’s correlation fell from a three-year correlation of ~0 to a one-year correlation of ~0.72. A correlation of ~0.72 means that about 72.0% of the time, New Gold moved in the same direction as gold in the last year. Remember, a fall in gold usually causes mining stocks to fall and vice versa.

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