Financial encyclopedia

Copper-to-gold ratio as an index to judge business cycle.

Copper-Gold Ratio is the ratio of copper price to gold price in English, which means how many ounces of gold are needed to buy one ounce of copper. It is often used as an indicator to judge the global business cycle.

Copper-gold ratio calculation formula:

Copper price per ounce/gold price per ounce = copper-gold ratio

"copper"

It is an important industrial metal, which is mostly used in industry, and more than 65% of it is used in construction and electronic products. Therefore, when the global economy grows rapidly, the performance of copper price is strong, so copper price is regarded as a leading indicator of global prosperity.

"gold"

It is a typical hedge and anti-inflation asset, which has little to do with industry, and its price is mainly affected by interest rates and inflation expectations. The rise in the price of gold usually represents an increase in worries about the economic recession. Therefore, when the economic recession or geopolitical factors break out, the price of gold often performs well, and when the economy is prosperous, the price of gold tends to be flat or fall.

Relationship between copper-gold ratio and business cycle;

When the economy recovers or enters the growth stage,

The demand for copper has increased, and the price growth rate has surpassed that of gold, so that the ratio of copper to gold has increased.

When the economy eases or enters the recession stage, the demand for copper decreases, and the demand for safe haven of gold increases. The price performance of copper is weaker than that of gold, which makes the ratio of copper to gold decrease.

The ratio of copper to gold does not have a long-term absolute high or low point, but as a relatively short-term change, it is still of reference value.