How Miners’ Correlations to Gold Are Trending
As global tumult grips markets and investors turn to mining stocks as safe havens, it’s crucial to understand which stocks are closely tied to precious metals.
April 20 2017, Published 12:10 p.m. ET
Mining stocks and precious metals
As global tumult grips markets and investors turn to mining stocks as safe havens, it’s crucial to understand which stocks are closely tied to precious metals. Stocks with a higher correlation with precious metals will likely be impacted more by global indicators that influence the metals.
Precious metal mining stocks tend to follow precious metals. However, on a day-to-day basis, the correlation may not be as strong.
Gold-based and silver-based funds like the Physical Swiss Gold Shares (SGOL) and the Physical Silver Shares (SIVR) have seen massive YTD (year-to-date) gains of 12.1% and 14.8%, respectively.
Among AngloGold Ashanti (AU), Hecla Mining (HL), Kinross Gold (KGC), and Eldorado Gold (EGO), AngloGold has the lowest correlation with gold, while Kinross has the highest correlation with gold. Over the past three years, only Kinross has seen its correlation with gold rise, while AngloGold has witnessed a falling correlation. The other two miners showed a mixed trend.
Studying upward and downward trends is important for metal investors, as price change predictability can be affected by rises and falls in precious metal prices.
Upward trending correlations
AngloGold’s correlation with gold has dropped from a three-year correlation of ~0.66 to a year-to-date correlation of ~0.58. A correlation of ~0.58 means that ~58% of the time, AngloGold has moved in the same direction as gold.
Most mining stocks have seen their prices rise due to the revival of precious metals on increased haven bids. Price increases don’t indicate an increase in correlation.