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What's Keeping a Lid on Precious Metal Prices?

PART:
1 2 3 4 5
Part 2
What's Keeping a Lid on Precious Metal Prices? PART 2 OF 5

What Miners’ Correlation Readings Indicate

Correlation analysis

Mining stocks tend to move with gold prices. For our correlation analysis, we’ll compare four mining stocks to gold. We’ll look at Alamos Gold (AGI), First Majestic Silver (AG), B2Gold (BTG), and Royal Gold (RGLD).

Mining-based funds are also known to have a high correlation with precious metals. The VanEck Vectors Gold Miners Fund (GDX) and the Global X Silver Miners (SIL) have fallen 5.4% and 6.7%, respectively, during the last five trading days. The decline in these mining funds was fueled by the slump in precious metals during the past few weeks. All these four miners that we are discussing have also seen a decline in their price since the beginning of the new year.

What Miners&#8217; Correlation Readings Indicate

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Trend analysis

The YTD correlation readings of the miners seem pretty distorted, as Alamos has a small correlation to gold of 0.03, while BTG has a correlation of 0.33. AG has a -0.44 correlation to gold. A negative correlation indicates that a rise in gold could lead to a drop in AG, while a decline in gold could lead to a surge.

AG has seen its correlation to gold drop over the past three years. AG had a three-year correlation of 0.57 and a one-year correlation of 0.47. A correlation of 0.47 indicates that about 47% of the time AG moved in the same direction as gold, and rest of the time, the movement in its share price was independent of gold movement. AGI, BTG, and RGLD have two-year correlations to gold that are higher than their three-year correlation.

Correlation trend readings are critical to investors, as they can suggest the possible directional moves of these miners.

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