Macro Indicator: Gold vs. Commodities

Also known as the ‘real price of gold’, the monetary metal adjusted by commodities (e.g. Au/CRB ratio) is an important indicator of relative risk/reward for risk ‘on’ cyclical commodities vs. risk ‘off’ counter-cyclical gold.

This is particularly well illustrated by gold’s status vs. industrial metal commodities like copper. These ratios can be a valuable indicators for identifying whether the macro economic environment is one of cyclical (and inflationary) economic growth or contraction (and disinflation or worse).

Commodities (positively correlated to the economy) will tend to out perform in an inflationary growth environment, while counter-cyclical gold will out perform commodities in a contraction and even deflationary environment. Here is a big picture view of the Copper/Gold ratio, which tells all you need to know about its cyclical indications in the modern market.

The relationship of gold to cyclical commodities and the conclusions derived from it are very important in defining the macro backdrop over long-term and even shorter-term periods. By extension, they are important for those seeking to be in balance with the macro at any given time.