A Look at the Correlation Trends for Miners

Franco-Nevada and Silver Wheaton have seen an upward trend in their correlations with gold.

Meera Shawn - Author

Oct. 27 2017, Published 12:08 p.m. ET


Correlation analysis

When investors want to invest in mining stocks, it’s important to analyze the correlation of mining stocks to gold. Gold is the most dominant of the precious metals and influences not only other fellow metals but also mining stocks.

Understanding mining stocks’ correlation with gold is crucial for investors in precious metal mining stocks. In this part of our series, we’ll assess First Majestic Silver (AG), B2Gold (BTG), Silver Wheaton (SLW), and Franco-Nevada (FNV).

Key mining funds also depend on precious metals for their directional moves. Funds that have a strong correlation with gold and silver include the VanEck Vectors Gold Miners ETF (GDX) and the iShares MSCI Global Gold Miners (RING).

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Correlation with gold

On a YTD (year-to-date) basis, the correlation of these mining stocks seems to be weak compared to the previous year. Among the four miners we’re discussing in this part, First Majestic Silver has the lowest correlation with gold, while Silver Wheaton has the highest.

Franco-Nevada and Silver Wheaton have seen an upward trend in their correlations with gold. The other two stocks have a mixed correlation. Franco-Nevada’s correlation has risen from a 0.66 three-year correlation to a one-year correlation of 0.82.

A rise in correlation indicates that the price changes in gold should actively play a role in mining stocks’ price changes.

A correlation of 0.82 suggests that in the past year, Franco-Nevada has been taking cues from gold ~82.0% of the time. It means that a rise in gold leads to a rise in Franco-Nevada ~87.0% of the time.


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