Reading the Directions: How Mining Stocks Are Correlating with Gold

As we analyze mining companies’ technical movements, it’s vital that we also study the correlation between mining stocks and gold for the bigger picture. Remember, gold also determines the directional price movements of silver, platinum, and palladium.

Below, we’ll analyze Sibanye Gold (SBGL), Gold Fields (GFI), Agnico-Eagle Mines (AEM), and Primero Mining (PPP).

The mining funds that have strong relationships with precious metals include the Sprott Gold Miners (SGDM) and the iShares MSCI Global Gold Min (RING), which have risen 10.6% apiece on a YTD (year-to-date) basis.

Among the four miners that we’ve selected, Sibanye Gold has the lowest correlation with gold so far this year, while Gold Fields has the highest correlation YTD. Gold Fields’ and Agnico-Eagle’s correlations have risen over the past three years.

Gold Fields has a three-year correlation of 0.49 and a one-year correlation of 0.66. The correlation of 0.66 implies that ~66.0% of the time, AngloGold has moved in the same direction as gold over the past year.

Remember, any increase in correlation with gold is an indicator that the price is more likely to track the directions of precious metals than it had been previously.