Gold is the most important of the four precious metals. The other three precious metals are often known to closely follow the price changes in gold. To analyze the performance of miners, we first need to look at the performance of gold. In this part of the series, we’ll concentrate on the correlation study of miners to gold over the past three years.
If we look at the YTD (year-to-date) correlations of the select mining shares to gold, there has been a reasonable fall. On a YTD basis, Sibanye Gold has the least correlation to gold, while First Majestic has the highest.
Mining-based funds that have a strong correlation with precious metals include the VanEck Vectors Juniors Gold Miners ETF (GDXJ) and the iShares MSCI Global Gold Miners (RING). They have 30-day trailing losses of 4.1% and 4.4%, respectively.
Among the four miners we’re analyzing, AG, BTG, and SBGL have seen their correlations fall over the past three years. GFI has seen a mixed performance during the same time period. An increase in the correlation suggests that the miners are being influenced more by price changes in gold.
AG’s three-year correlation of 0.58 has fallen to a one-year correlation of 0.49. A correlation of 0.49 indicates that in the past year, AG has been taking cues from gold 49% of the time. It suggests that a rise in gold leads to an increase in AG 49% of the time.