Copper/Gold Ratio

What It Measures

The Copper/Gold ratio compares the price of copper futures to gold futures. Copper is a key industrial metal used in construction, manufacturing, and electrical systems. Gold is a safe-haven asset that rises during uncertainty. The ratio reflects the market's view of economic growth versus recession risk.

Why It's Important

• Leads Treasury Yields: The ratio leads 10-year Treasury yields by approximately 18 months, making it a powerful predictive tool.
• Economic Growth Proxy: Rising copper demand indicates building, manufacturing, and infrastructure expansion.
• Risk Sentiment: When investors expect growth, they buy copper. When they fear recession, they buy gold.
• Global Activity: Copper demand reflects China's economy, global trade, and industrial production worldwide.

Trading Signals

• Rising Ratio: Economic expansion expected. Copper demand increasing. Bullish signal for stocks, bearish for bonds (yields rise).
• Falling Ratio: Economic contraction feared. Risk-off sentiment. Bearish for stocks, bullish for bonds (yields fall).
• Sharp Spike: Often precedes strong economic growth periods and higher interest rates.
• Sharp Drop: Often precedes recessions and lower interest rates. Flight to safety (gold).

Historical Context

The ratio typically collapses before recessions (2008, 2020) as investors flee to gold. It rebounds strongly during expansions (2009-2011, 2016-2018, 2021-2022) as copper demand surges. The 18-month lead time makes it valuable for positioning before major moves in Treasury yields and growth stocks.

Use Cases

• Predict direction of 10-year Treasury yields 18 months ahead
• Identify economic cycle turning points (expansion to contraction)
• Time rotation between growth stocks and defensive sectors
• Gauge global risk appetite and industrial demand