Copper-Gold Ratio Suggests 10-Year Yield Overshoot

The copper-to-gold ratio has dropped to 0.11, causing renewed downward pressure on the benchmark 10-year U.S. Treasury yield. According to research by Professor Dror Parnes from Texas AM University, this ratio often contains short-term predictive information for the 10-year Treasury yield, typically over lags of one to five days.

The current setup is notable as a prolonged compression in the ratio might suggest the 10-year yield has overshot, leaving room for, at least a temporary pullback. The 10-year chart itself shows a rising wedge forming, a pattern that typically breaks to the downside.

Gold has risen faster than copper, supported by central banks buying roughly 1,000 tons annually, sovereign debt concerns and investors fleeing currency debasement. However, a copper rally still has an industrial ceiling, while gold lacks such constraints, keeping the ratio depressed.