Mining correlations with precious metals
Amid the turbulence in the markets, precious metals started rising due to increased haven bids. The rise in precious metals was also seen in mining stocks.
If you’re interested in parking your money in mining stocks, it’s important 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 global indicators that influence precious metals.
The iShares Gold Trust (IAU) and the iShares Silver Trust (SLV) have seen significant correlations with their respective precious metals. These two funds closely track the performances of their precious metals and have risen 8.4% and 14.2%, respectively, on a YTD (year-to-date) basis.
On a YTD basis, Pan American has the lowest correlation with gold compared to Randgold Resources (GOLD), Yamana Gold (AUY), Pan American Silver (PAAS), and Coeur Mining (CDE). Yamana has the highest correlation. Over the past three years, Yamana has seen upward correlations with gold. The other three miners have a mixed upward-downward trend.
Studying the upward and downward trends is important for precious metal investors, since price change predictability can be affected by rises and falls in precious metal prices.
Yamana’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 has moved in the same direction as gold over the past year.