Precious Metals and Mining Stock: What the Correlation Looks Like

Meera Shawn - Author

Aug. 18 2020, Updated 6:27 a.m. ET

Mining stocks

As the price of gold rebounded on July 5, 2017, so did the stocks of many miners. Silver continued trading lower, but most mining shares are followers of gold rather than silver, so most miners rebounded.

A correlation analysis gives us an idea of mining stocks’ price movements and how closely they follow the changes in precious metals.

In this part of the series, we’ll look at First Majestic Silver (AG), Newmont Mining (NEM), Gold Fields (GFI), and Pan American Silver (PAAS) and their correlations with gold.

Funds such as the VanEck Vectors Junior Gold Miners ETF (GDXJ) and the Sprott Gold Miners ETF (SGDM) are strongly correlated with gold. These two funds saw their prices fall 2.3% and 1.7%, respectively, on Friday, July 7.

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Correlation trends

Among these miners, Gold Fields has the highest correlation with gold, while Pan American Silver has the lowest. Among the above four miners, Newmont Mining and Gold Fields have seen upward rising correlations with gold, while First Majestic Silver and Pan American Silver saw a mixed trend in correlation.

A rise in correlation indicates that a price change in gold would likely cause mining shares to trade in the same direction. A fall in correlation suggests that it’s less likely that mining stocks will move with gold.

Newmont has seen its correlation with gold move to a three-year correlation of ~0.62 and a year-to-date correlation of ~0.71. A correlation of ~0.71 means that the company has moved in the same direction as gold ~71.0% of the time over the past year.

It’s important to remember that correlations can move in different directions at different times.


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