How to Read Uptrends and Downtrends in Correlations


Dec. 11 2019, Updated 12:42 p.m. ET

Gold-following stocks

As we know, precious metal mining stocks are closely tied to the metals they mine. And whenever we consider investing in the mining industry, it’s crucial to study other metals’ correlations to gold.

Most of the time, an increase in metals can scale stocks, and a decline could lead to decreasing stock prices. To be sure, the Fed’s recent comments about rate hikes in 2017 have impacted both precious metals and mining shares lately, and of course, there’s a chance that related stocks could fall even more if a hike takes place in June.

Notably, the iShares MSCI Global Gold Miners (RING) and the Global X Silver Miners (SIL) rose 0.11% and 1.5%, respectively, on June 12.

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Correlation trends

Among Alamos Gold (AGI), First Majestic Silver (AG), Silver Wheaton (SLW), and Franco-Nevada (FNV), Silver Wheaton has the highest correlation with gold, and Alamos Gold has the lowest correlation. Over the past three years, Silver Wheaton has seen rising correlations with gold, while Alamos and First Majestic have seen downtrends in their correlations.

Investors in mining shares study upward and downward trends in correlation when they consider buying a particular share. For example, Silver Wheaton has a three-year correlation of ~0.70 with gold and a one-year correlation of ~0.81. The correlation of ~0.81 means that Silver Wheaton has moved in the same direction as gold ~81% of the time during the past year.

But it’s also important to note that the correlation moves in different directions at different times.


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