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What does the copper/gold ratio signify for global stocks and bonds?

by LLB Reporter
14th Aug 23 9:27 am

Many investors swear by copper as a good guide to global economic and financial health – and hence the industrial metal’s nickname of ‘Doctor Copper’ – while others look to gold as a measure of whether there is trouble ahead or not.

AJ Bell investment director Russ Mould said: “A study of the copper-to-gold ratio could therefore be informative. If copper does better, this may be markets’ way of saying that the good times might be ready to keep rolling. If the precious metal outperforms the industrial one, that could be an indicator that something bad is going to happen – an inflationary outbreak or a recession (or even both at the same time, in the worst of all worlds, and a return to the stagflation of the 1970s).

“Copper is priced in tonnes and gold in ounces, but the conversion is an easy one, as there are 35,270 ounces in a tonne. If the line on the chart rises, then copper prices are doing better than gold and if it falls then the precious metal is outperforming the industrial one.

“Gold massively outperformed copper in the 1970s, after US President Richard Nixon withdrew the dollar from the gold standard, scrapped the fixed exchange rate of $35 an ounce and smashed up the Bretton Woods monetary system.

“The copper/gold ratio plunged in the 1970s as inflation soared and central banks found themselves struggling to rein it in, to the detriment of markets’ faith in them and also politicians’ ability to forge economic growth during a decade of stagflation.”

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