Miners’ correlations with gold
Mining stocks’ correlation with gold is crucial since gold is the big brother of precious metals. The directional move in the remaining three precious metals—silver, platinum, and palladium—often depends on gold. Similarly, mining shares often take their movements from gold.
For our correlation analysis, we’ll look at AngloGold Ashanti (AU), Hecla Mining (HL), Kinross Gold (KGC), and Eldorado Gold (EGO). Mining-based funds also have a high correlation with precious metals. The Global X Silver Miners ETF (SIL) and the iShares MSCI Global Gold Miners (RING), which tend to closely track gold and silver, rose 4% and 0.58%, respectively, in the last 30 trading days.
The above four miners, except Kinross Gold, have seen a downward correlation to gold over the past three years. Eldorado’s three-year correlation fell from 0.48 to a one-year correlation of 0.30. A correlation of 0.30 indicates that about 30% of the time over the past year, Eldorado moved in the same direction as gold, while the rest of the time it wasn’t correlated to gold.
The YTD (year-to-date) correlation for these four miners, except Eldorado, is considerably higher. The smaller sample size could have been the reason for such high numbers.
A declining trend in a correlation to gold indicates that gold has been playing a less influential role in moving mining companies. The relationship could change over time, so it’s important to watch them.