Copper/gold, an indicator of the global economy and inflation
The copper/gold ratio is considered an interesting economic indicator for understanding the health of the global economy and the outlook for gold bullion. So let’s take a look at how it’s performing and what information we can glean from it.
Copper, as a widely used industrial metal, is generally seen as a proxy for economic growth trends, while gold is seen as a safe-haven asset whose value rises in times of economic uncertainty. In intermarket analysis, the strength ratio between the prices of these two metals is used to understand the health of the global economy and inflationary trends. In addition, the copper/gold ratio correlates with US 10-year Treasury yields, as the latter tend to rise during economic expansions and fall during contractions.
The chart above shows the trend in the copper/gold strength ratio over the past year. We can see the bearish trend that began in the spring of last year and the sideways movement that has characterised the last few months. The ratio is currently below its long-term average. One indication of this is the expectation of a slowdown in the global economy, a fall in inflation and, consequently, a fall in the yield on 10-year US Treasuries. The other is a confirmation of gold’s state of grace, although the sideways movement of recent weeks suggests more caution about medium-term developments.
If we extend the horizon to 2020 (top graph), we see a long-term downward trend from mid-2022. Note the spike in the indicator, which coincides with the period immediately following the pandemic (growth + inflation).
