The Gold/Copper Ratio Suggests That Bond Yields Have Already Peaked

From Eric Bush: Over the past decade there has been a very strong relationship between US 10-year treasury yields and the gold/copper ratio.

As the gold/copper ratio increases (i.e. gold becomes more expensive relative to copper), yields have fallen to the tune of an -85% correlation. On 12/5/16, the gold/copper ratio made a low and has since increased by 6%. Yields followed suit and peaked on 12/15/16 and have rallied 22 bps including today’s price moves.

If the 12/5 low for the gold/copper ratio holds, it isn’t a stretch to imagine that 2.60% on the 10-year ultimately is proven to be the peak of the “Trump trade”.

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The iShares Barclays 20+ Yr Treas.Bond ETF (NASDAQ:TLT) was trading at $120.34 per share on Tuesday afternoon, down $0.8 (-0.66%). Year-to-date, the largest ETF tied to long-term Treasuries has gained 1.02%, versus a 1.61% rise in the benchmark S&P 500 index during the same period.

TLT currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #20 of 27 ETFs in the Government Bonds ETFs category.


This article is brought to you courtesy of Gavekal Capital.

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