Keeping a close eye on the ratio between copper and gold can be helpful in determining where interest rates are headed. If the ratio is heading lower – copper is weaker than gold – interest rates will tend to fall. If the ratio heads higher – copper is stronger than gold – rates will head higher, suggesting a strong and growing economy.
Let’s be clear about the ratio's intermediate trend: It remains up since the lows at (1), which were hit about 14 months ago.
Let’s also be clear about the small decline over the past 6 weeks has not broken the trend.
A reversal pattern (bearish wick) looks to have taken place at (2), which so far hasn’t proven anything. In my humble opinion, what happens at (3), which could be a support test of a bearish rising wedge, is important for the short-term trend in this ratio. If support gives way as momentum is creating lower highs, some selling pressure could take place in the copper market.
The Inflation indicator
The inflation indicator's long-term trend remains lower and the counter-trend rally that started over a year ago hit falling channel resistance at the start of this year and has been heading lower.
With the copper:gold ratio and the Inflation ratio both in long-term downtrends, the current support-tests both look to be very important as far as letting us know if pressures will continue for interest rates to rise. It could also tell us a good deal about the economy and inflation.