Thursday, 20th February 2020
The story currently being told by copper and gold….
I’m here, there and everywhere today – reliant on the train network to get me from A to B and then on to C where I stay overnight before spending the morning in D and then finally heading back to A – home….
In this age of connectivity though, it hardly matters where you are – you can plug in, tune out from your surroundings and work….
Today, I share with you some observations from my notebook….
- Keep your eye on copper….
If you want to know how things are panning out, the price of copper is always worth keeping your eye on….
Copper is sometimes referred to as the metal with a doctorate in economics….
Why? Because it frequently proves a more accurate guide to what is going to happen on the road ahead than all the whizz-kid forecasters with PhDs who are supposedly ‘expert’ at doing that very forecasting job – but who more often than not fall short….
Copper is a soft, malleable, and ductile metal with very high thermal and electrical conductivity. It is relatively inexpensive. It is plentiful. It has numerous useful properties. It effectively resists corrosion. And it is an effective conductor of both electricity and heat….
As such it forms a component part of many day-to-day products – such as vehicles, white goods, wiring, plumbing, heating and cooling systems….
The metal also acts as an effective barometer of economic health….
Copper is generally purchased long before it ends up in consumer products. So, when demand cools and the price of copper drops, this represents a clear indication of economic slowdown on the road ahead….
The price of copper has fallen off a cliff this year….
- Keep another one on gold….
Of course, gold is another soft metal with predictive powers that can tell us something about what is going to unfold further down the line….
Remember what happened after the global financial crisis in 2008?
That’s right. The gold price shot from just over $600 to over $1000 per ounce – a rise of more than 65%….
This happened because investors got fearful. All the financial turmoil in the banks and the wider financial system got investors to worrying about an economic slowdown and falling stock prices….
And in that fearful state, investors did what investors always do when the future looks bleak. They shunted capital out of stocks and into gold – the ultimate safe haven metal….
When things go wrong, gold has a track-record of not only holding its value – but increasing in value as more and more capital seeks out safety in its loving embrace….
Right now, gold is on a climb. It is up 44% since the beginning of 2016. And it is up 22% on this time last year….
What does this tell us? It tells us that capital is becoming increasingly fearful about what lies on the road ahead. That capital fears low economic growth and a big correction in global stock prices….
That frightened capital is seeking out safety in gold and, in turn, producing the rising gold price – which I suspect will keep on rising….
- And pay heed to this ratio….
Perhaps the ultimate barometer of economic health and economic outlook is the ratio between the price of gold and the price of copper….
If a rising copper price indicates a growing global economy and a rising gold price indicates fear of a weak global economy, then the ratio that exists between the prices of the two metals must tell us something about where we are on the scale between optimism and negativity….
I think that is reasonable. And the ratio has a track record too….
The Great Depression, the stagflation of the 1970s and the last global financial crisis and the recession that followed were all characterized by an extremely high gold/copper ratio….
Right now, the ratio between gold and copper prices is high again and it is rising….
You can view the growing ratio in chart from on the second of the two charts that appear here….
There is trouble ahead. No doubt….
- The bet I’d be striking….
The global economy is not in good shape. Copper and gold prices (and the ratio between the two) tell us that quite clearly….
Yet all-time high stock prices tell us something different. So do politicians….
Global stock markets are mistaken – confused by a decade of new money and easy credit which has resulted in asset price inflation to the point where stock values are entirely disconnected from reality….
The politicians are also confused or mistaken or – more likely still – lying through their back teeth….
Going forward I’d be betting against economic growth and rising stock prices….
I’d be in gold – sitting on the sidelines and waiting for a stock market reset of unprecedented proportions….
It might take a while – because world governments are set on doing all in their power to prop the markets up….
But the reset will come – and that is when there will be bargains to be had. Meantime, gold will not only hold its value – but it will continue to go up….
That’s the truth of it as I see it….
All the best,