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Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here. |
Add this to your collection of toothy alligator charts.
The copper-gold ratio represents the price of copper per pound divided by the price of gold per troy ounce. While the absolute level of the ratio doesn't hold significance, its trajectory does – particularly when observing whether the 10-year Treasury yield aligns or diverges. Historically, when discrepancies arise, the 10-year yield often gravitates toward the direction set by the copper-gold ratio. This alligator may be swimming around with its mouth wide open for a while. In other words, rates remain high and headed higher.
We've experienced multiple divergence episodes in the past. For instance, on March 19, 2012, the 10-year peaked at 2.38% before descending below 2%. However, this rate hike wasn't reflected in the copper-gold ratio, which stood at 0.23 on that same day. By July 24, 2012, when the 10-year reached its lowest close at 1.39%, the copper-gold ratio had only slightly decreased to 0.21. It wasn't until the taper tantrum that the 10-year realigned with the ratio.
Given the present macro backdrop, this is a chart worth monitoring, but we expect a prolonged phase with higher rates before any anticipated mean reversion.
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Learn more about the Market Situation Report written by Tier 1 Alpha. |
