Inside the Upward and Downward Correlation Trends in Precious Metals



Miners and precious metals

The anticipation of another interest rate hike by the Fed has, as usual, begun to dominate the movements among precious metals, which fell at the beginning of May. Mining companies have seen choppy markets of late, but there was a little revival last week (ended May 19). Recent safe-haven bids could have contributed to rising precious metal prices.

It’s widely expected that precious metal mining stocks will follow the direction of their respective precious metals, and so it’s crucial to understand which stocks are closely tied to precious metals and which are not.

Mining funds also fell last week. The SPDR S&P Metals and Mining (XME) and the VanEck Vectors Junior God Miners (GDXJ) have dropped 0.27% and 0.99%, respectively, over the past 30 trading days.

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Correlation trends

Among Sibanye Gold (SBGL), Gold Fields (GFI), Coeur Mining (CDE), and Barrick Gold (ABX), Gold Fields has the highest correlation with gold, and Barrick has the lowest correlation. Over the past three years, all major miners except Coeur have seen a rising correlation with gold.

Metal investors study upward and downward trends because price change predictability can be influenced by precious metal prices. Gold Fields, for example, has a three-year correlation of ~0.77 with gold and a one-year correlation of ~0.80. A correlation of ~0.80 means that Gold Fields moved in the same direction as gold ~80% of the time.


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