Copper/gold ratio showing signs of life: constructive for miners? 

COPPER/GOLD RATIO SHOWING SIGNS OF LIFE: CONSTRUCTIVE FOR MINERS?

The copper to gold ratio is recovering from its record low in March, driven by a sharp fall in gold prices while copper has remained largely rangebound, notes Citi.

The ratio currently sits at around 3.25, having fallen as low as 2.5 in March, although it remains below its long-term average of 5.7.

The STOXX Europe 600 Basic Resources Index (.SXPP), which includes diversified miners as well as pure play precious metals and copper ore miners, has had a rough month. The index is down about 14% after rising to an all-time peak on June 2.

But Citi believes the rising copper/gold ratio should be supportive for the sector.

"Historically this ratio has had a very strong positive relationship with the performance of the mining equities," writes Citi analyst Ephrem Ravi.

"If we take this as the guide, miners’ overall performance is likely to be constructive near term."