[Eng] Copper/Gold Ratio vs. 10 Y
A brief summary of the relationship b/w --
Copper/Gold Ratio vs. 10 Year Treasury Yield
Copper/gold ratio is a leading indicator of the 10 year US treasury yield. Since 2015, the two are considered to have a positive correlation. So if they are not going in the same direction -- something is gonna go wrong.
The Rationale
Copper:
Copper is considered the most widely used (and of the earliest adoption) metal in industries (circuit boards, integrated circuites, electrical motors, you name it... And please do not forget clean energies use cases for copper). So basically we can consider the price of copper an indicator of the general sentiment towards production and economic expansion -- the higher the general sentiment is, the more copper is needed.
Gold:
Safe haven asset, reserve currency... Reflection of the inclination to less risky assets when time might be hard.
10 Year Treasury Yield:
The higher the yield, the lower the bond price -- which indicates less demand for the bond, which is usually considered risk free. Less demand for risk free fixed-income assets usually means people tend to seek higher return on riskier investment opportunities.
Putting the concepts together, one could tell that the copper/gold ratio and the 10 year treasury yield are both indicators of market sentiment and might go in the same direction at times.
This parity, with the selection of the units, came into mainstream attention in the recent decade.
chart
Now, take a look at the current chart (as of 2022-06-24):
chart now
The parity doesn't hold -- one side of the two is not seeing things right... or something unfavorable is gonna happen soon. When the market does not fancy the US treasury bonds much and also not liking investing in the actual production -- nothing good can come out of this. The question is, what will they buy next?
