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The sharp decline in copper prices, which is the barometer of the economy, could signal gold’s exit from the corner where it’s stuck. The relationship between copper and gold indicates that central bank interest rate hikes are tightening. The ratio, which shows how much gold copper is buying, is falling. This situation paves the way for a slowdown in interest rate increases, which are dragging gold down, in order to avoid a recession.

Copper fell 17% in 1 month, gold 8%

Copper prices, which are currently trading at around $7,400 a ton and $3.30 a pound, are down 17% in the past month and 24% on a yearly basis. An ounce of gold, which fell below $1,700, lost 8% of its value in the past month, and the annual decline was 6.4%. The copper/gold ratio, which is considered the compass of industrial activities in the face of fears of economic recession or inflation, has also entered a downward trend in recent months and the ratio per 1 ton of copper has fallen to an all-time low. of the last 1.5 months. years at 4.3.

Economic expansion often causes the copper/gold ratio to rise as industries invest and increase production, driven by confidence that household demand and consumption will increase. On the other hand, in times of recession in economic activity, slowdown in production and high inflation, this ratio decreases as it is now. Between August 2020 and October 2021, the copper/gold ratio almost doubled in the first quarter of 2022, following the phenomenal acceleration of the post-COVID-19 global economic recovery. Subsequently, copper’s performance deteriorated relative to that of gold as investors grew increasingly concerned about the sustainability of the economic recovery.

The first stage of stagflation As the copper/gold ratio gradually declines, this situation appears as the first sign of stagflation. According to analysis by Capital.com, the price movements of gold and copper warn that stagflation is imminent. Stagflation refers to the slowing of economic growth due to persistent inflationary pressures. It is indicated that if the Fed slows the rate of interest rate hikes and the US dollar index loses strength, an ounce of gold may find support.

However, experts warn that the Fed is going through a complex period where it could raise interest rates in the range of 75 to 100 basis points next week.

Psychological risk less than $1,700

The rise in US bonds after a short period of decline and the rise in US 10-year bond yields above 3% removed an ounce of gold. The ounce of gold fell below the critical threshold of 1,700 dollars on the international markets. Since an ounce of gold has not been traded in and below the 1700 region for a long time, there are not many support points located below this region, which presents a risk. On the downside, $1,680 is strong support. If selling breaks below this point, support at $1,650 could be in order. If it is broken above $1,700 again, the resistance levels of $1,722 and $1,745 will be followed, respectively.

#Coppergold #warns #stagflation

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