As we analyze mining companies, a correlation study of the miners to gold is important. Gold is the most famous among the precious metals and is likely a price determinant of the directional move of silver, platinum, and palladium.
Mining funds that have a strong relationship to precious metals are the Global X Silver Miners (SIL) and the VanEck Vectors Gold Miners (GDX). They have risen 6.1% and 12.7%, respectively, year-to-date.
Among the four miners that we’ve selected, Franco-Nevada has the lowest correlation with gold this year, while Agnico Eagle Mines and Primero Mining have higher correlations. Agnico, Silver Wheaton, and Franco-Nevada’s gold correlations have moved up over the past three years, while Alamos Gold’s correlation has fallen. Sibanye’s correlation has seen a mixed trend.
Franco-Nevada has a three-year correlation of 0.66 and a one-year correlation of 0.82. The correlation of 0.82 implies that ~82.0% of the time, Franco-Nevada has moved in the same direction as gold during the last one year.
A rise in correlation is an indicator that the price is more likely to track the directions of precious metals compared to equities in general.