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The Positive and Negative Correlation to Gold

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Jan. 30 2018, Updated 7:37 a.m. ET

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. 

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Trend analysis

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.

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