Copper, Gold, and US Interest Rates - Proxy for Economic Recovery?

Copper and Gold

Market lore has it that copper has a PH.D. doctorate in economics, with its uncanny ability to predict turning points in the global economy. Copper is an industrial commodity. It is widely used in many facets of the global economy such as manufacturing, construction, electronics, manufacturing, and other cyclical industries.

The demand for copper is viewed as a proxy for economic growth since it is sensitive to the changes in the global economy. Since copper is used for wiring in construction and manufacturing, in circuit boards and integrated circuits within smartphones and electronics, in motors and turbines, and solar panels, rising copper prices is generally associated with strong copper demand and hence an expanding economy. When copper us surging higher, it suggests a healthy economy and the market's appetite for risk assets. On the other hand, when copper prices are plunging lower, it denotes sluggish demand and warns of waning economic conditions.

The opposite of cooper is gold, at least from a commodities perspective. Gold is a precious metal. It is scarce, dense, virtually indestructible, valuable, and a classic store of value or store wealth. With these attributes, gold is a risk-off, a safe-haven, flight to a quality asset class that performs well during recessions, slowing economic growth, and periods of macro and geopolitical uncertainties. Gold has few industrial applications and has not lived up to its reputation as reliable inflation or currency hedge asset in recent years.

Copper/Gold Ratio (CGR)

The predictive power of the copper/gold relationship is the different roles each of the commodities plays in the global economy. The former is an industrial commodity, and the latter in its reputation as a stored wealth. The usefulness of ratio analysis like the CGR is not from the value of the ratio. It is the trend of the ratio, and most importantly, the sustainability of this trend.

Enclosed below are the Copper/Gold ratio monthly, weekly, and daily charts. Since 2011, the price of copper and gold has fallen sharply from 2011 to 2016 and rallied from 2017 to 2018. However, since 2018 the copper/gold relationship diverged as copper has declined precipitously and gold has rallied sharply over the same timeframe. In the longer-term monthly chart, it shows that for the past eleven years, a well-defined downtrend channel has developed in the copper/gold ratio via a series of lower-highs (Jan 2011, Dec 2017, and Jun 2018 highs) and lower-lows (Sep 2011, Jun 2016, and Mar 2020 lows).

Remember, when gold is outperforming copper, it warns of a slowing economy as investors turn to gold as a hedge against a slowing economy, macro, geopolitical, and recently healthcare crisis. However, when copper outperforms gold, this signals the start of improving economic conditions. Mar 2020 bottom may have been an inflection point for financial markets (commodities, fixed income, currency, and equities). The ability of the copper/gold ratio to rebound from the pivotal support (bottom of 2011 downtrend channel) hints at the start of a near-to-intermediate term recovery.

Copper/Gold ratio and 10-year US Treasury Yield (TNX) Relationship

Historically, the copper/gold ratio (CGR) has been reliable in predicting the direction of the 10-year US Treasury yield (TNX). That is, when the copper/gold ratio trended higher, it bodes well for a higher 10-year US Treasury yield (higher interest rates). Divergences between CGR and TNX is noteworthy as it can also alert investors to potential turning points in the economy. The attached weekly and monthly charts both hint at a successful test of the CGR downtrend. The question then becomes whether CGR can confirm a breakout above the top of its downtrend channel. One other point, 2020 may have been a structural bottom as evidenced by the ability of CGR to rebound from its long-term support coinciding with the 1980 and 1987 lows. A successful test is technically constructive, but a breakout above the top of its 9-year downtrend channel would further help to validate the start of the next major rally. A rally in CGR to the top of its channel suggests TNX can also rally toward its early-2020 technical breakdown level near 1.25-1.35%.


The copper/gold ratio (CGR) has been a reliable historical indicator and can be a proxy for global economic conditions. A rising CGR trend signals an economic recovery and the possibility of expanding economic growth. A declining CGR trend warns of deteriorating or weakening/contracting economic conditions. CGR seems to have successfully rebounded from pivotal support near its 1980 and 1987 bottoms as well as the bottom of its 9-year downtrend channel. Although the ability of CGR to rebound bodes well for an economic recovery, a confirmed breakout above the top of its 9-year downtrend channel helps to validate a structural US economic expansion cycle.

The current positive correlation between the copper/gold ratio (CGR) and the 10-year US Treasury yield (TNX) also hints of a sustainable economic recovery. In the past month, the CGR trend has surged sharply higher in relationship to TNX. If this trend continues, then this would further support a sustainable economic recovery or possibly the start of the next longer-term economic expansion phase.

Source: Courtesy of

Source: Courtesy of

Source: Courtesy of

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