In order to have a brief idea of how a mining company is performing, it’s important to look at the correlation of the stock with gold. Gold is the most important precious metal and is considered a determinant of the price direction of silver, platinum, and palladium.
Mining funds that have a good relationship with precious metals are the VanEck Vectors Junior Gold Miners ETF (GDXJ) and the Sprott Gold Miners ETF (SGDM). They have risen 7.9% and 10.6%, respectively, year-to-date.
Among the four miners that we’ve selected, Alamos Gold has the lowest correlation with gold this year, while Agnico Eagle Mines has the highest correlation. Agnico’s and Randgold’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.
Agnico-Eagle has a three-year correlation of 0.68 and a one-year correlation of 0.87. The correlation of 0.87 implies that ~87.0% of the time, Agnico has moved in the same direction as gold during the last one year.
A rising correlation is an indicator that the stock is more likely to follow the directions of precious metals compared to equities in general. The factors that move gold tend to impact the correlated miners as well.