Miners’ correlations with gold
Mining stocks tend to take their cues from gold. For our correlation analysis, we’ll compare a few different mining stocks to gold. In this part of the series, we’ll look at New Gold (NGD), Newmont Mining (NEM), Sibanye Gold (SBGL), and Gold Fields (GFI)
Mining-based funds are also known to have a considerably high correlation with precious metals. Mining funds such as the Global X Silver Miners ETF (SIL) and the Sprott Gold Miners ETF (SGDM) have a seen rises of 1.4% and 2.8%, respectively, in the last month. These rises are certainly due to the revival in precious metals prices.
If we look at the correlation readings of the above miners as of the beginning of the new year, the numbers look pretty strong. This may be due to a sampling error, as we’re looking at weekly correlation, so the data available are only for three weeks. Nonetheless, Gold Fields has the highest correlation to gold on a YTD (year-to-date) basis, while New Gold has the lowest.
The correlation trends have deteriorated over the past year. New Gold has seen its correlation with gold drop over the past three years. From a three-year correlation of 0.55, it’s fallen to a one-year correlation of 0.22. A correlation of 0.22 suggests that during the past year, New Gold has moved in the same direction as gold ~22% of the time.
NEM, SBGL, and GFI have seen their correlations with gold increase over the past two years, but their trailing-one-year correlations remain weak. A trend reading of miners’ correlations with gold suggests possible price changes in these shares with respect to gold.