The Gundlach Ratio is calculated by dividing the price of copper by the price of gold. Gundlach believes that this ratio has predictive value for investors.
Copper is considered a pro-cyclical metal. Its price tends to rise when the economy is doing well because it is widely used in construction, manufacturing, and infrastructure.
Gold, on the other hand, is often seen as a safe-haven asset. Investors flock to gold during times of uncertainty or fear.
High Ratio: If copper prices are relatively high compared to gold, it suggests economic optimism and growth.
Low Ratio: Conversely, a low ratio indicates economic concerns and potential market stress.
When the Gundlach Ratio is rising, it may signal economic expansion and positive sentiment. When the ratio is falling, it could indicate economic slowdown or market turbulence.
Remember that no single metric is fool-proof. Always consider other factors, such as interest rates, geopolitical events, and broader market trends.