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Analyzing the Correlation Trends of Mining Shares in November

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Nov. 13 2017, Updated 9:02 a.m. ET

Correlations

When investing in mining stocks, it is crucial that we analyze mining stocks’ correlations with gold. Mining stocks typically take their directional clues from gold, which is the most prominent precious metal. Gold’s movement influences the other precious metals as well as mining shares.

Below, we’ll assess New Gold (NGD), Newmont Mining (NEM), Yamana Gold (AUY), and Pan American Silver (PAAS). The mining-based funds that have strong correlations with precious metals include the VanEck Vectors Gold Miners ETF (GDX) and the Global X Silver Miners ETF (SIL).

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Trends

On a year-to-date basis, the above miners’ correlations appear to be weak compared to the previous year. Among the four miners, Pan American Silver has the lowest correlation with gold, while Yamana Gold has the highest correlation with gold.

New Gold and Yamana Gold have seen upward trends in their correlations with gold, while Newmont Mining has seen its correlation drop from a three-year correlation of 0.63 to a one-year correlation of 0.54. A surge in correlation indicates that price changes in gold should increasingly play a role in mining stocks’ price changes.

Yamana Gold’s correlation increased from a three-year correlation of 0.71 to a one-year correlation of 0.91. A correlation of 0.91 suggests that in the past year, Yamana Gold has been taking cues from gold ~91.0% of the time. As a result, a rise in gold could lead to an increase in Yamana Gold ~91.0% of the time.

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