Rising Uncertainty Could Continue To Weigh On Copper Prices

• In the past few weeks, we have seen that the contraction in Chinese credit, the rising uncertainty over the Delta variant and the recent hawkish comments from Fed policymakers have led to a rise in risk aversion, which has been weighing on risky assets.
• Even though copper prices, considered as many investors as a leading indicator of global economic health (Dr. Copper), have been consolidating in the past month, the copper-gold ratio is still indicating that either the industrial metal is still too high at current levels or the 10Y yield below 1.50% is too low (assuming that gold is trading a 'fair' price).
• The chart below shows that the copper-gold ratio has strongly co-moved with the 10Y US Treasury yield over time, and that periods of moderate to significantly divergence were generally followed by rapid adjustments between the two times series.
• Can the divergence persist if uncertainty continues to rise significantly during this summer?

Source: Bloomberg/MNI