McClellan Chart In Focus: Copper/Gold Ratio – By Tom McClellan

 
Chart In Focus

I love intermarket relationships, and especially ones which can give useful insights.  This week’s chart looks at the ratio of copper prices to gold prices, and compares that to the 10-year T-Note yield.

The first interesting point to raise about this comparison is that I am using just a single Y-axis.  Normally a comparison of two data series will merit putting them on separate Y-axes.  I did multiply the copper/gold ratio by 1000 to bring it into the same realm as the 10-year yield, and that seems to have been enough of an adjustment.

It is pretty amazing how closely these two plots stick together over time.  This chart looks back 12 years, and the relationship has been a sticky one for a lot longer than that. 

The additional interesting point is that the 10-year yield plot seems to be the wilder one of the two.  While it dances the same dance steps as the copper/gold ratio, it dances farther at the extremes, and that is the fun insight about this comparison.  Right now, the 10-year yield has dropped way below the copper/gold ratio on this scaling.  When that has happened before, it has conveyed a message that both plots are likely to reverse. 

To get the copper/gold ratio to turn upward, copper prices would have to start outperforming gold prices on a relative basis.  That typically happens when the economy speeds up, and demand for copper improves.  Such an improvement in the economy is the Fed’s stated goal in dropping its short term rates to zero.  The copper/gold ratio’s position on the chart says that bond yields have swung too far now.

Tom McClellan
Editor, The McClellan Market Report

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About the author

Sherman and Marian's son Tom McClellan has done extensive analytical spreadsheet development for the stock and commodities markets, including the synthesizing of the four-year Presidential Cycle Pattern. He has fine tuned the rules for interrelationships between financial markets to provide leading indications for important market and economic data. Tom is a graduate of the U.S. Military Academy at West Point where he studied aerospace engineering, and he served as an Army helicopter pilot for 11 years. He began his own study of market technical analysis while still in the Army, and discovered ways to expand the use of his parents' indicators to forecast future market turning points. Tom views the movements of prices in the financial market through the eyes of an engineer, which allows him to focus on what the data really say rather than interpreting events according to the same "conventional wisdom" used by other analysts. In 1993, he left the Army to join his father in pursuing a new career doing this type of analysis. Tom and Sherman spent the next 2 years refining their analysis techniques and laying groundwork. In April 1995 they launched their newsletter, The McClellan Market Report, an 8 page report covering the stock, bond, and gold markets, which is published twice a month. They utilize the unique indicators they have developed to present their view of the market's structure as well as their forecasts for future trend direction and the timing of turning points. A Daily Edition was added in February 1998 to give subscribers daily updates on their indicators and also provide market position indications for stocks, bonds and gold. Their subscribers range from individual investors to professional fund managers. Tom serves as editor of both publications, and runs the newsletter business from its location in Lakewood, WA.