Welcome to Demographic Reality: Copper-Gold Ratio Set to Plunge Again

I looked at the copper-gold ratio in 2019 and some potential price levels based on those ratios. In prior posts, I've discussed the case for a breakout in the gold-copper ratio, or new low in copper-gold. It boils down to demographics.The government cannot print growth. It doesn't matter how the endgame plays out because there won't be enough organic physical growth (the virtual economy is another story). Let the bubble burst and gold will outperform, even if it falls a lot, because it will attract safe haven buying. If governments try printing their way out, even if they do a push to electric vehicles, they will destroy economic growth because planned economies aren't efficient at resource allocation.

The price of copper could rise in a "green" central-planning scenario, but it would likely erupt into uncontrollable stagflation that leaves an economic depression in its wake. Falling demographics means slowing car sales, for example, even before adding in regulations that will drive up car prices. The government could mitigate some of these issues if it had a cheap energy policy instead of an expensive energy policy, but pushing harder in the direction of expensive energy will only accelerate and intensify the coming disorder.

The gold-copper ratio is at a critical juncture. If it breaks lower, it would slide into the levels seen during the 2000s with inflationary growth. If it moves higher, it would be back in the post-2008 range associated with slow growth and negative interest rates, as well as the range seen in the early 1980s echo from the 1970s inflation crisis. The short-term pattern looks bullish though, which suggests gold is beginning a longer stretch of outperformance relative to copper. The best way to express this in a trade would not be long gold or hedge, but to short copper and related assets outright.