Good for gold! MT4.MT5 trading reminder

As recession fears continue to mount, one market analyst said an indicator that could show the Federal Reserve is close to changing its monetary policy would be bullish for gold.

 

Nicky Shiels, head of metals strategy at MKS PAMP, said in a recent research note that she was closely watching the copper/gold ratio as it fell to a key level.

 

"This is an indicator of market risk appetite and possibly a leading indicator of the direction of interest rates," she said in the report.

 

 

 

Analysts pointed out that copper prices have fallen sharply in recent months, as investors believe that the global economic contraction will lead to lower demand for copper, and the risk of a recession is growing.

 

Currently, copper prices are at their lowest point this year. Comex high-grade copper futures were last at $3.288 a pound. Although gold has struggled, falling to $1,700 an ounce, it has outperformed copper. Copper prices have fallen more than 26% so far this year. Meanwhile, gold prices fell about 7%.

 

"The copper/gold ratio is falling sharply, driven by a relatively large drop in copper prices, which contrasts with a 50-75 basis point increase in the federal funds rate to curb inflation," she said.

 

Shiels noted that the common price action of gold and copper is sending a deflationary signal to the market. However, the ratio shows a solid stagflationary environment when compared to U.S. dollar rates.

 

That could provide fresh bullish momentum for gold as it continues to hold key support, she said.

 

“Overall, we still believe we are in the early stages of a stagflationary backdrop, during which gold should perform. A reversal in dollar action and/or a return to investor confidence in the broader market should provide the necessary boost. ."

 

Compared to interest rates, the copper/gold ratio has fallen to 4.3, which could be an important level for future monetary policy, Shiels said. She added that this could indicate that the Fed's monetary policy has become too tight.

 

“In the past, if the copper/gold ratio fell below 4, it would mark the end of the Fed cycle,” she said. “So being at 4.3 suggests that we are closer to the Fed’s dovish axis and/or closer than the market expects. final rate."

 

Currently, the market expects the Fed to raise interest rates by 75 basis points at the end of this month. Meanwhile, the market still sees a 33% chance of the Fed raising rates by a full percentage point.