Gold is most influential
In this part of the series, we’ll analyze the correlation of the mining stocks to gold. Gold is the most dominant of the four precious metals, and silver, platinum, and palladium are known to closely track the movement in gold. Also, precious metals, though they belong to the equity segment of the market, are more dependent on where precious metals move, especially gold.
The miners we have selected for analysis here are Agnico-Eagle Mines (AEM), Franco-Nevada (FNV), Coeur Mining (CDE), and Barrick Gold (ABX). Among the four miners under discussion, AEM has the highest correlation to gold, while Franco-Nevada has the lowest correlation on a YTD basis.
The mining-based stocks like the VanEck Vectors Junior Gold Miners Fund (GDXJ) and the Global X Silver Miners (SIL) also tend to have a considerable correlation to gold and silver prices. These two funds have fallen over the last one week. They have a five-day trailing loss of 3.8% and 1.3%, respectively.
Dropping correlation of ABX
Over the past three years, AEM, FNV, and ABX have seen a declining correlation to gold, while CDE saw a mixed correlation to gold. A dropping correlation to gold indicates that gold is becoming less influential in the price of these mining companies.
ABX’s three-year correlation with gold dropped from 0.73 to 0.56, and it currently has a YTD correlation of 0.51. A correlation of 0.51 indicates that about 51% of the time since the beginning of 2018, ABX moved in the same direction as gold. The rest of the time, it was not correlated to gold.