Gold is the most dominant among the four precious metals. It’s important that investors analyze how miners are moving compared to precious metals. In this part, we’ll focus on a correlation study.
Mining-based funds that have a strong correlation with precious metals include the Global X Silver Miners (SIL) fund and the iShares MSCI Global Gold Miners (RING) fund. These two funds have risen 2.8% and 2.2%, respectively, on a five-day trailing basis.
If we look at miners’ one-year correlation, Primero Mining has the highest correlation with gold and Wheaton Precious Metals has the lowest.
Among the four miners we’re analyzing, all of them, except Primero Mining, have seen a scaling correlation to gold over the past three years. Franco-Nevada’s correlation has risen from a three-year correlation of 0.66 to a one-year correlation of 0.82.
An increase in the correlation suggests that the miner is being influenced more by the price changes in gold.
A correlation of 0.82 indicates that in the past year, Franco-Nevada has been taking cues from gold ~82% of the time. It suggests that a rise in gold leads to an increase in Franco-Nevada ~82% of the time. It’s crucial to understand that the trends in the correlation could keep changing.