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October 2017: How Do Mining Stocks Correlate with Gold?

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Correlation analysis

Understanding mining stocks’ correlation with gold is crucial for investors in precious metal mining stocks. In this part of our series, we’ll assess Goldcorp (GG), Newmont Mining (NEM), Randgold Resources (GOLD), and Eldorado Gold (EGO).

Major mining funds like the VanEck Vectors Junior Gold Miners Fund (GDXJ) and the Sprott Gold Miners (SGDM) look to precious metals for their directional moves.

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Trend analysis

On a YTD 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, Goldcorp has the lowest correlation with gold, while Newmont has the highest.

With the exception of Newmont, these four mining stocks have an upward trending correlation with gold. Newmont witnessed a downward trend in correlation from a 0.63 three-year correlation to a 0.54 one-year correlation. Eldorado Gold’s correlation has risen from a 0.61 three-year correlation to a 0.89 one-year correlation. A rise in the correlation indicates that the price changes in gold should actively play a role in mining stocks’ price changes.

A correlation of 0.89 suggests that in the past year, Eldorado Gold has been taking cues from gold ~89% of the time. Thus, a rise in gold has led to a rise in Eldorado ~89% of the time.

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