Copper-Gold Ratio Predicts Higher Stock Prices

Includes: IVV, JJC, JJCC, SPY
by: Babak

Since we’ve had movement in both the price of copper (up) and gold (down) I thought we’d check into the copper/gold ratio. The reason I’m interested in the price of copper in gold is that it has been an uncanny predictor of the S&P 500 recently:

click to enlarge

copper gold ratio Aug 2010

The copper gold ratio was predicting lower prices for the S&P 500 index back in June.

Back then, the ratio fell below the lows it made in October 2009, November 2009 and February 2010. Soon stock prices followed.

Now, the ratio has made a bottom (in early June) and surpassed its previous lows (blue line). That would suggest that the early July lows in the S&P 500 will hold - assuming that this relationship between the commodities ratio and stock prices continues, of course.

As well, the firm prices in Dr. Copper are suggesting that a “double dip” is a receding scenario.