Miners’ correlations with gold
Mining stocks tend to take their indications from gold prices. For our correlation analysis, we’ll compare four mining stocks to gold. We’ll look at Franco-Nevada (FNV), Randgold Resources (GOLD), Yamana Gold (AUY), and Pan American Silver (PAAS).
Mining-based funds are also known to have a high correlation with precious metals. The iShares MSCI Global Gold Mining ETF (RING) and the VanEck Vectors Junior Gold Miners ETF (GDXJ) have risen 5.0% and 1.1%, respectively, during the last one-month period. These increases are probably due to the revival in precious metal prices.
If we look at the correlation readings of the above miners as of the beginning of 2018, most of these miners show a strong correlation gold. This correlation trend may also be due to the small available sample size.
Franco-Nevada has a negative correlation to gold on a year-to-date basis. Its correlation of -0.78 suggests that about 78.0% of the time, Franco-Nevada has moved in the opposite direction of gold since the beginning of 2018.
Franco-Nevada and Pan American Silver have seen their correlation readings deteriorate over the past three years. Pan American Silver saw its three-year correlation drop from 0.72 to a one-year correlation of 0.68. GOLD and AUY have seen mixed trends in their correlation readings over the past three years.
A study of the correlation trends could be essential as it could indicate the possible directional moves of these miners.