over 2 years ago • 1 min
The ratio of copper’s price to the price of gold peaked last month – and further declines in this closely followed measure could signal problems for the global economy ahead.
Copper tends to rise when investors are excited about the economy – because it has real-world applications in electronics and construction. Gold, meanwhile, is considered a safe store of value and tends to climb when investors get nervous. The interaction of these two trends means the ratio of the two metals – copper divided by gold – is considered a barometer of investors’ feelings about the future.
And, unfortunately, that ratio (shown in blue on the chart) has been heading lower after hitting a seven-year high in early May – meaning copper’s price is declining relative to gold. The yield on 10-year US government bonds (shown in pink) is another indicator of investors’ optimism about future economic growth, and has also been dropping in recent weeks.
After a period of bounce back from the depths of the coronavirus pandemic, these market moves are signalling that investors don’t think the pace of economic growth can continue.
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