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How Are Mining Stocks’ Correlations to Gold Moving in 2018?

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Feb. 28 2018, Updated 11:10 a.m. ET

Miners’ correlations with gold

Mining stocks tend to take their cues from gold price movement. For our correlation analysis, we’ll look at First Majestic Silver (AG), B2Gold (BTG), Randgold Resources (GOLD), and Yamana Gold (AUY).

Mining-based funds have a high correlation with precious metals. The VanEck Vectors Gold Miners ETF (GDX) and the Sprott Gold Miners (SGDM) rose 1.1% and 0.52%, respectively, on Friday, February 23. However, it was one of the days where mining funds deviated from precious metals. 

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Trend reading

The correlations of the miners mentioned above is higher on a YTD basis. Among the four miners that we are discussing, B2Gold has the highest correlation to gold of 0.87 on a YTD basis, while First Majestic has the lowest at 0.76. Sample size could be an issue that affects correlation readings.

Among these four miners, Yamana, Randgold, and First Majestic have seen their correlations with gold fall over the past three years. AUY’s correlation has fallen from a three-year correlation of 0.71 to a one-year correlation of 0.65. A correlation of 0.65 indicates that about 65% of the time over the past year, Yamana has moved in the same direction as gold. Its movement wasn’t related to gold price trends the rest of the time.

A trend reading for miners’ correlations with gold suggests possible price variations. Gold is the most crucial of the four precious metals. So the fluctuation in gold could lead to a directional change in other precious metals as well as miners.

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