A study of the correlation of mining shares to gold is important since it gives investors an idea of the directional move of miners compared to gold.
In this part of the series, we’ll assess Agnico-Eagle Mines (AEM), Primero Mining (PPP), Pan American Silver (PAAS), and Coeur Mining (CDE). The mining-based funds that have strong correlations with precious metals are the VanEck Vectors Gold Miners ETF (GDX) and the Sprott Gold Miners ETF (SGDM), which have risen 7.8% and 5.9%, respectively, on a YTD (year-to-date) basis.
On a YTD 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 Primero Mining has the highest.
Only Agnico-Eagle has seen an upward trend in the correlation with gold, while the other three miners have seen a mixed trend. Agnico-Eagle Mines’ correlation increased from a three-year correlation of 0.68 to a one-year correlation of 0.87. A surge in correlation indicates that price changes in gold should increasingly play a role in mining stocks’ price fluctuations.
Agnico-Eagle Mines’ correlation of 0.87 suggests that in the past year, it has been taking cues from gold ~87% of the time. So a rise in gold could lead to an increase in Agnico-Eagle Mines ~87% of the time.
It’s important to study the trends in correlation as they could change quickly.