Copper/Gold Ratio

The Copper/Gold ratio as a leading indicator of interest rates, a favorite of DoubleLine's Jeffrey Gundlach, surged higher after reaching its low in the 2nd quarter of last year. The chart shows 30 years of the ratio (red) along with the 10-year Treasury yield (blue).

The direction of the ratio is most important rather than the level. Copper, closely tied to the physical economy, reflects strength in the economy and desire for risk assets compared with the safety of Treasuries.

In previous recessions, note the decline in the ratio throughout most of the recessionary periods, turning higher near the end. However, last year, the ratio bottomed early in the recession. Interest rates did appear to follow the ratio higher. The heavy government and Fed intervention likely contributed to this early rebound. Additional fiscal and monetary intervention would lead to further copper price gains and potentially higher rates.