We have been vocal in our views on commodities in the current market environment. However, on May 6th, we began to make a case for becoming more selective in the space. We maintain this view now. While the early days of the advance from the COVID lows favored industrial metals over precious metals, the tides appear to be shifting. The Copper/Gold ratio is breaking an important support level. More broadly, Base Metals are beginning to lag Precious Metals after being rejected at a prior high.
The Copper/Gold ratio is breaking through support at the lower bound of a consolidation that has been in place for 15 months. The ratio is trading below the declining 50 and 200-day moving averages, and the 14-day RSI is in a bearish regime. Below the breakdown level, odds favor a continuation to the downside.
Looking at each of these assets individually, we can see that Gold is trying to stabilize above the broken downtrend line while Copper is testing support at the bottom of its consolidation zone.
Broadening out the scope of this relationship, we can see that it is not unique to Copper and Gold. Looking at the relationship between Base Metals and Precious Metals, we can see that the ratio was rejected at a prior high and has subsequently turned lower. At that peak, the 14-day RSI made a lower high, leaving a bearish divergence on the chart.
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