The Most Important Chart Over the Next 45 Days

January 13, 2023

If I had to hinge my trading on a single data set, that data set would need to focus on three key variables.

It would have to measure interest rates… the hormones of the economy.

It would need to measure major global currencies… or better yet gold, the currency of currencies.

And it would need an easy way to measure the intricate balance between inflation and economic growth.

Ask most traders, and they’ll tell you no such thing exists. But most traders are wrong.

It does exist. And it’s shouting a critical message right now.

The chart below compares the copper-to-gold ratio with the change in the yield of the 10-year Treasury. It’s a thing of beauty.

The copper-to-gold ratio is exactly what it sounds like. It tells us how much of the pivotal industrial metal can be bought with an ounce of gold. It’s an ideal measure of the economy because gold tends to rise in value when the economy is in trouble, while copper tends to see its price grow as the economy strengthens.

All sorts of variables can affect the two.

Looking at the chart closely, we can see a strong correlation between interest rates and this ratio. It makes sense. When the dark blue line that represents the copper-to-gold ratio rises or falls, the 10-year Treasury tends to very soon follow in kind.

But look at the right side of the chart.

Something is off.

The copper-to-gold ratio has stayed virtually flat… yet the 10-year Treasury has zoomed higher.

Some analysts look at this and say it’s the bond market that has got things wrong. They say rates are too high and last year’s sell-off was overdone.

Put in other words, they say the strength of the 10-year Treasury tells us that the Federal Reserve has taken its tightening too far.

Yesterday’s inflation numbers would tend to disagree.

But there’s another possibility, one I’ll explain in next month’s issue of Manward Letter. It’s a bit of a contrarian take on things. But I have ample evidence that shows it’s really the copper-to-gold ratio that’s lagging.

And if that’s the case… a whole world of trouble is on the way.

It would mean the prices of commodities need to surge – an idea that’s not all that far-fetched given the recent developments in China (the world’s top user of copper). It’s also an idea that is antithetical to Jay Powell’s push to lower prices.

That battle makes this a chart to watch. What it shows us over the next 45 days will be absolutely critical to determining how this mess will pan out.

The team and I will keep you up to date.

And if you’re a Manward Letter subscriber, get ready for a pivotal issue in a few weeks.