Gold is most influential
In this part of the series, we’ll analyze mining stocks’ correlation with gold. Gold dominates the four precious metals, and silver, platinum, and palladium are known to closely track its movement.
Among the miners we’ve selected for analysis—AngloGold Ashanti (AU), Hecla Mining (HL), Kinross Gold (KGC), and Eldorado Gold (EGO)—AU has the highest correlation with gold, while EGO has a negative correlation.
Mining-based funds are a sentiment reader for the mining sector. The Direxion Daily Gold Miners Bull 3X Shares ETF (NUGT) and the Direxion Daily Junior Gold Miners Index Bull 3x Shares ETF (JNUG) have fallen 21% and 18.8%, respectively, year-to-date.
Over the past three years, AU, HL, and EGO have seen a declining correlation with gold. AU’s three-year correlation with gold has dropped from 0.74 to a two-year correlation of 0.71, and further to a one-year correlation of 0.67. A correlation of 0.67 indicates that ~67% of the time, AU moved in the same direction as gold. A dropping correlation indicates that gold has less influence on the price of these mining companies.