COPPER/GOLD VS. BOND YIELDS - SO WHAT?

2017-01-11 1pm EDT  |  #Gundlach #copper #gold #platinum #palladium #bonds

It’s that time again. Time for the newly anointed Bond King to emerge from his private office with the strange noises to grace us with his wisdom filled charts that quickly get passed around as traders rush to copy the royal monarch of fixed income. DoubleLine’s Jeffrey reportedly prefers to be addressed as the Godfather or the Pope, but it doesn’t matter. His fund’s performance has created an era of mystique that has made him one of the hottest managers on Wall Street.

So it’s no surprise his latest musing about the copper/gold ratio versus the US 10 year T-note yield is garnering a lot of attention.

Far be it for me to question the King (or whatever he wants to call himself), but this relationship is interesting, yet doesn’t offer much opportunity. Yeah, we get it. The copper/gold ratio follows US 10 year yields fairly tightly. But where is the trade?

So at the risk of high treason, I present the following chart which I think is much more interesting.

The platinum/gold ratio has also tracked the US 10 year yield over the past few years, but recently has diverged.

This divergence might offer an opportunity. Are bonds oversold and due for a rally that brings these two series closer together? Or is the platinum/gold ratio due for a ripper?

I am not sure. Platinum straddles the line between an industrial and precious metal, so it is not quite as “clean” a trade as the copper/gold ratio for measuring economic activity, but there can be no denying that until three months ago, the ratio to gold tracked US 10 year yields fairly closely.

Palladium, which has some similar uses to platinum, has performed much better over the past few months, so is this just a case of platinum lagging, or has something changed?

I realize I have posed more questions than answered, but highlighting divergent opportunities like the platinum/gold ratio versus 10 year yields seems infinitely more valuable than merely noting two assets trading on top of one another. I am sure even the “90210 kush” loving Bond King might appreciate it…

Thanks for reading,
Kevin Muir
the MacroTourist