Mining shares and metals
When we read the price fluctuations for precious metals and mining stocks, it’s crucial to realize how closely these two are linked.
Leveraged mining funds such as the Direxion Daily Gold Miners Bull 3X ETF (NUGT) and the Proshares Ultra Silver (AGQ) have high correlations with gold. These funds have fallen 14.2% and 5.3%, respectively, on a trailing five-day basis as of July 3, 2017.
Trends in correlation
Among the above four mining companies, Yamana has the highest correlation with gold, while Pan American has the lowest. Over the past three years, Yamana, Sibanye, and Gold Fields have seen upward correlations in their trends, while Pan American has seen a mixed trend in correlation.
A rise in correlation means that there’s an increased tendency of a particular miner to react according to changes in gold.
Yamana has a three-year correlation with gold of ~0.74 and a one-year correlation of ~0.80. The correlation of ~0.80 suggests that Yamana has moved in the same direction as gold about 80.0% of the time over the past year. Gold Fields saw its three-year correlation of 0.77 rise to a one-year correlation of 0.80.
But bear in mind that correlations can move in different directions at different times.