Mining correlations with precious metals
Precious metals often rise due to the increased haven bids in the markets. The mining stocks also closely follow these metals and rise.
For those 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 global indicators that influence precious metals themselves.
The leveraged mining funds like the Direxion Daily Gold Miners (NUGT) and the ProShares Ultra Silver (AGQ) have seen significant correlations with their respective precious metals. These two funds closely track the performance of their respective metals and have risen 28.4% and 29.8%, respectively, on a YTD basis.
Among Alamos Gold (AGI), First Majestic Silver (AG), B2Gold (BTG), and Royal Gold (RGLD), Alamos has the lowest correlation with gold, while Royal Gold has the highest correlation with gold on a YTD basis. Over the past three years, First Majestic, B2Gold, and Royal Gold have seen downward-trending correlations with gold.
Studying the upward and downward trends is important for metal investors, as price change predictability can be affected by rises and falls in precious metals prices. Royal Gold’s correlation with gold has increased from a three-year correlation of ~0.75 to a year-to-date correlation of ~0.71. A correlation of ~0.71 means that ~71.0% of the time, Royal Gold has moved in the same direction as gold since the beginning of 2017.