Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Is Copper Signaling Lower Gold Prices Ahead?

Commodities / Gold & Silver Jan 14, 2008 - 09:37 AM GMT

By: Clif_Droke


Best Financial Markets Analysis ArticleHere's a question many investors have asked in recent weeks, especially given the current divergence between the gold and copper prices.

Copper has a history of providing leading signals for the price of gold. Most notably, the copper price double-bottomed between 1999-2001 and refused to make a lower low during a time when the price of gold make a 20-year low. This leading signal in copper preceded the major turnaround in the yellow metal price in 2002 and beyond.

For years I've relied on the proxy of Freeport Copper & Gold (FCX) as a leading/confirming indicator for the XAU gold/silver mining index. It's true that the copper producers have historically led the gold mining stocks at pivotal turning points in short-, intermediate- and even long-term time frames. This appears to be one area of mining sector research in need of greater attention.

With this question of copper vs. gold leadership in mind, let's take a look back in recent history in search of a potential connection between the two. We'll start by looking at a major blue chip copper stock, Southern Copper Corp.

Southern Copper Corporation produces copper, molybdenum, zinc, and silver. The company, formerly known as Southern Peru Copper Corporation, was founded in 1952 and is based in Phoenix, Arizona. Southern Copper is a subsidiary of Americas Mining Corporation. The stock, which trades under the symbol PCU on the NYSE, has long been a leading indicator of the XAU gold/silver index as a comparative analysis of both charts will show.

In late 1999 when the Kress 30-year cycle for equities peaked, the gold stock group as represented by the XAU also suffered from the broad market selling pressure. The XAU made an interim peak in October 1999 along with PCU. The XAU was the first to peak out and from there the XAU entered a downward trend, making a series of lower highs and lowers lows throughout the year 2000. The XAU finally hit bottom in October 2000 – exactly one year after its peak.

During 1999-2000, PCU made a higher low against the XAU index. While the XAU broke below its 1999 low, PCU stayed above its low from ‘99 and made a conspicuously positive divergence against the XAU. This was the first intermediate-term technical signal that the gold stocks were due a reversal and it turned out to be prescient. The XAU embarked on an 18-month rally off its October 2000 low at the 43 level to its high just below 90 in May 2002.

By the time the XAU made its multi-year high at the 90 level in May 2002, PCU failed to make a higher high. This was an intermediate-term negative divergence and it predicted a period of weakness ahead for the gold stocks. Not surprisingly, the XAU entered a period of underperformance relative to the broad market as it pulled back from its May '02 high and entered a 14-month trading range between the 60 and 80 levels.

The XAU finally broke out above 80 in July 2003, but not before another leading signal from PCU. PCU broke out to a higher high in January 2003 at the same time the XAU was making a lower high below its May 2002 peak. The breakout made by PCU in January 2003 was the signal that the major trend for the mining sector was up, notwithstanding the interim weakness in the XAU index. Within five months of this leading signal from PCU, the XAU broke out of its interim trading range and was on its way to higher levels in 2003.

After a vigorous rally in the second half of 2003, the XAU made a double top between December 2003 and January 2004. This led into a long period of underperformance versus the S&P as the XAU experienced a rather large trading range in 2004 which stretched from the 80 level to the 110 level. The XAU closed with a loss for 2004, yet PCU made a higher high in October 2004 which signaled that a period of strength was just ahead for the gold stocks.

After overcoming a shaky start to the New Year in 2005, the XAU recovered to make a higher high in 2005. True to form, PCU had led the way higher for the gold stock group once again.

In May 2006 the XAU encountered resistance and there followed another period of underperformance as the XAU spent the better part of the period between May and December '06 in a narrow trading range between the 120 and 150 levels. While the XAU closed the year 2006 below its high from May of that year, how did PCU fare? The stock managed to close 2006 on a high note after making a series of higher highs and higher lows throughout that year. This was yet another leading indicator that the XAU would eventually succeed in breaking out of its interim trading range and travel to higher levels.

The anticipated breakout in the XAU didn't occur until July 2007. It was followed by a whipsaw-type pullback in August '07. At the August 2007 low the call/put open interest ratio for the CBOE Gold Index reached an extraordinary level which strongly suggested that insiders were heavily long the gold stocks. This proved to be an accurate indicator as the XAU roared ahead from the August low into November of that year to a new all-time high, covering a ground of nearly 75 points from bottom to top. After a brief but shallow correction in November-December, the XAU recovered its old high and made a slightly higher on Jan. 11, 2008.

Up until the November 2007 high in the XAU, the PCU price line was confirming the bull market in the gold stocks. Since November '07, however, PCU has pulled back and retraced some of its previous gains and is now at its lowest close (as of January 11, 2008) since August 2007. PCU has been lagging the XAU for the past two-and-a-half months. Is this a concern for the gold stocks?

The lag between the upside breakout to new highs in PCU in November 2006 and the XAU's eventual breakout in the summer of 2007 was obviously a lot longer than the historical norm. It's possible that the gold stocks will overcompensate for this long lag by continuing to surge upward in the weeks ahead even if PCU and the other leading copper stocks continue to underperform. At some point, though, a continued lag between copper and gold, and the copper and gold mining stocks, will reach the break point and the yellow metal, along with the PM stocks, will give way to the negative undercurrent.

Much of the current strength reflected in gold and the leading gold stocks is due to the fear premium as investors run for cover from the widespread fears over the economy. Gold has greatly benefited from its safe haven status during this time of investor uncertainty. When the fear has finally lifted, however, the fear premium will no longer be in the yellow metal's favor. The “heads up” signal in such equities as PCU, FCX, IMN:TSX and TCK seem to be warning of this intermediate-term eventuality.

By Clif Droke

Clif Droke is editor of the daily Durban Deep/XAU Report which covers South African, U.S. and Canadian gold and silver mining equities and forecasts PM trends, short- and intermediate-term, using unique proprietary analytical methods and internal momentum analysis.  He is also the author of numerous books, including "Stock Trading with Moving Averages."  For more information visit

Clif Droke Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules