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Understanding Mining Correlation Trends So Far in 2017

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Aug. 18 2020, Updated 10:21 a.m. ET

Mining stocks and precious metals

As global tumult grips markets and investors are turning to mining stocks as safe havens, it’s crucial to understand which stocks are closely tied to precious metals. Stocks with a higher correlations to precious metals will likely be impacted more by global indicators that influence precious metals.

It’s widely expected that precious metal mining stocks will follow the direction of precious metals. However, on a day-to-day basis, the correlation may not stand as strong.

Notably, the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV) have seen massive YTD (year-to-date) gains of 12.1% and 14.8%, respectively.

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Among Primero Mining (PPP), Silver Wheaton (SLW), Randgold Resources (GOLD), and Yamana Gold (AUY), Randgold has the lowest correlation with gold, while Silver Wheaton has the highest correlation with gold. Over the past three years, Yamana, Silver Wheaton, and Primero have seen their correlation with the rise in gold, while Randgold has witnessed a mixed trend.

Studying upward and downward trends are important for metal investors, as price change predictability can be affected by rises and falls in precious metal prices.

Upward trending correlations

Yamana gold’s correlation with gold has dropped from a three-year correlation of ~0.74 to a year-to-date correlation of ~0.80. A correlation of ~0.80 means that ~80% of the time, Yamana has moved in the same direction as gold.

Most mining shares have seen their prices rise due to the revival of precious metals on increased haven bids. But remember, price increases do not necessarily indicate rises in correlation.

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