Copper and gold indicate that the risk of recession is receding

Copper is called "Dr. Copper" and is said to have a "PhD in economics" because he is good at forecasting the economy. On the other hand, the ratio of the price of copper to gold is a great barometer of risk appetite in the market. Both now show that economic growth remains resilient and the risk of recession is still far away. This is in line with the recent optimistic PMI readings around the world.

Recession less likely?

The copper-gold price ratio is a great market barometer of risk appetite, the likelihood of a recession, and long-term bond yields. The strength of this indicator is due to the different uses of copper and gold in the economy. Gold remains a safe financial asset, gaining momentum in difficult economic times. While copper has a wide range of industrial applications, its price is strongly linked to the economic cycle. For this reason, copper is said to have a "PhD in Economics" ("Dr. Copper").

Recently, the ratio of the price of copper to gold has remained stable, which proves that the growth of the economy remains relatively stable and the risk of recession is lower. This is in line with a range of economic data that show that growth is highly resilient to the current situation. With the European PMI rising to 50, US GDP rising for Q10 (according to NOWCast data) and China reopening. This somewhat mitigates fears of a recession, and also helps to explain where the current increases in global stock markets come from. However, it is also a signal that the significant decline in the yield of XNUMX-year US bonds has its limits.

Copper market

Copper price up 25%. against the recent lows is due to the prospect of increasing Chinese demand. China, which is just opening up its economy and supporting the real estate sector, accounts for 60 percent of the country's GDP. global demand for this metal. It is also worth mentioning that copper is used in many ecological technologies. For example, the demand for copper may increase due to reductions in car prices Tesla (reductions also apply to Polish consumers). Copper inventories in the world are low and supply is under pressure. The largest producer, Chile, is likely to record a 6% drop in production this year, and Peru, the second largest producer, is experiencing a period of political uncertainty.

The gold market

Gold prices they rose to a nine-month high as the US dollar fell 10%. compared to their highest levels. Due to the probable end of the series of interest rate hikes by FED, the dollar will continue to depreciate against the euro and other currencies. And this will likely result in an increase in gold prices. Demand for gold from funds is also increasing ETFto which investors return. Demand for gold from central banks is also growing (although the NBP did not complete the announced gold purchases).

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.