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Analyzing Miners’ Correlations with Gold in January 2018

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Correlation with gold

In this part of the series, we’ll analyze the correlations of the movements of a group of mining stocks, including Coeur Mining (CDE), Barrick Gold (ABX), AngloGold Ashanti (AU), and Hecla Mining (HL), with gold.

Gold- and silver-based funds such as the Physical Swiss Gold Shares ETF (SGOL) and the Physical Silver Shares ETF (SIVR) tend to have strong correlations with their respective precious metals. These two funds rose 2.8% and 0.61%, respectively, on January 23, 2018. The rise was likely the result of the comparative weakness in the dollar and its impact on dollar-based assets.

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Reading the trends

The YTD (year-to-date) correlations of the miners we’ve selected are higher than their one-year correlations, suggesting that since the beginning of 2018, mining shares have become more correlated with gold, and their prices are more reactive to the fluctuations in gold.

Among the four miners under discussion, AngloGold has seen the highest correlation with gold during the past year, while Coeur Mining has seen the lowest correlation. In the last year, almost all miners had comparatively low correlations with gold.

Barrick Gold has seen a downward trend in its correlation with gold over the past three years. The stock’s three-year correlation dropped from 0.72 to a one-year correlation of 0.56. A correlation of 0.56 suggests that ~56% of the time during the past year, Barrick Gold stock has moved in the same direction as gold.

A correlation analysis of mining stocks is important because it gives us an idea of the potential direction of gold’s price movements.

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