This weekly chart of comparative value tracks the value of gold relative to key currencies, commodities and indexes :
- Copper prices - I'd like to see copper prices push us above $6,500 per tonne ($2.95 per pound). A fall below the $6,000-level ($2.72) would be a bad sign - for example, U.S./China trade Phase I in trouble or escalating geo-political unrest. [Update: Covid-19 has pushed copper below $6,000 per tonne].
- Chinese yuan - strengthening below 7 USDCNY is a good sign that their economy and trade are on an improving track (Weekly Summary). Sustained weakening above the 7-level is a red flag. [Chinese yuan is above 7 USDCNY again]
- U.S. dollar - will it remain strong or begin a period of decline? Foreign demand for Treasury debt has kept the dollar strong but rising U.S. deficits and countries trying to move away from dollar dependence (e.g., China, Russia) are countervailing forces not to be ignored. The U.S. Dollar Index (DXY) made its high September 30 this year and has been in a downtrend of lower-lows since (99.38 September high). This reports tracks the Invesco DB US Dollar Index Bullish Fund (UUP) (27.01 September high, see Weekly Summary below for latest price). Finally, overseas interest in Treasurys has been fueled by negative interest rates abroad. This report monitors the German 10-year bund (Weekly Summary) as a benchmark for foreign Treasury demand. [Update: Covid-19 has caused liquidations as market participants rush to the U.S. dollar for safety. This has surged the U.S. Dollar Index above 100]
- Interest Rates - there is an almost uncanny relationship between the yield on the benchmark U.S. 10-year Treasury and the copper-to-gold ratio (CGR, Weekly Summary). I've written about this extensively since 2017 ( see The Colonel's Latest Kitco News Commentaries below). Bottom line, a rising CGR signals higher interest rates for 2020. [Update: Covid-19 appears to have reversed the trend higher, 10-year Treasury is near record lows].
- Real rates - The 10-year inflation adjusted Treasury yield, or real rate, is the difference between the nominal yield and inflation expectations (aka 10-year "break-even" rate). Since gold is a non-interest earning assets it performs best when real rates are near zero or negative. This report tracks real rates (Weekly Summary) and inflation expectations (Inflation Watch). Since gold is often considered an inflation hedge it is prudent to track both. In 2020, inflation may pick up (gold bullish) but if interest rates rise faster, an increasing real rate dampens interest in in the yellow metal (gold bearish). [Real rates have been negative since March 23, 2020]
- Gold-to-S&P 500 ratio (AUSP) - Gold's relationship with equities is key to monitor. Gold lost value to the S&P 500 from Donald Trump's election until October of 2018. Since then it has regained value in a trend of higher-lows (see Chart to Watch). We entered 2020 with that trend higher challenged. Falling below trend would be a very bearish sign for gold. [Update: Covid-19 has put the AUSP solidly above trend].