Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Copper Hits Record High While Gold Stagnates
Transcript
- Lucas: Copper hit a new all-time high this week — six dollars and twenty-four cents a pound. Gold, meanwhile, is basically flat, sitting right around four thousand dollars an ounce. That divergence is telling us something about where the macro cycle is headed. Luna: It's a pretty stark contrast. Copper's the industrial bellwether, gold's the fear trade. So when they move in opposite directions like this, it's usually a signal. Lucas: Right. And the copper-gold ratio — which is just copper price divided by gold price — has been climbing steadily since early June. That ratio is often seen as a proxy for risk appetite versus避险. When it's rising, it suggests the market is betting on growth, not hedging against disaster. Luna: So what's actually driving copper? Is it purely the electrification narrative, or is there more to it? Lucas: It's mostly demand-side fundamentals. Copper is critical for everything from EVs to solar farms to the grid itself. But the big new driver in 2026 is AI data centers. Each new hyperscale data center needs a massive amount of copper for power cabling, grounding, and cooling systems. The International Energy Agency estimates data center copper demand could grow at a compound annual growth rate of 12 percent through 2030. Luna: That's a huge incremental demand source. And supply isn't exactly keeping up, is it? Lucas: No, it's not. Global copper mine production has been constrained for years. Major mines in Chile and Peru are facing ore grade decline, water shortages, and labor disputes. New projects take a decade or more to come online. So you've got structural demand growth running into structural supply stagnation. That's a recipe for higher prices. Luna: And gold? It's usually the opposite — it thrives when the economy is shaky, real yields are low, or inflation is hot. None of those conditions are really present right now. Lucas: Exactly. Real yields — that's the ten-year Treasury yield minus inflation expectations — have been trending higher since May. The ten-year breakeven inflation rate just ticked down to 2.22 percent, while nominal yields have stayed elevated. That means the real yield is climbing, which is historically a headwind for gold because it increases the opportunity cost of holding a non-yielding asset. Luna: So gold's stagnation makes sense in that context. But I'm also looking at coffee — it dropped almost 6 percent this week. That seems like a weather-related move, but it's also interesting against the broader commodity backdrop. Lucas: Coffee is definitely its own beast. The arabica contract — that's K-C-F — fell to around three-thirteen cents a pound. That's still high historically, but it's a sharp reversal from recent highs. The market has been volatile on Brazil's crop outlook — first a drought scare, then some beneficial rains. But I think the bigger point is that commodities are really bifurcated right now. You have industrial metals like copper screaming 'growth', while softs and precious metals are sending more mixed signals. Luna: And oil? It's been grinding higher — West Texas Intermediate is around seventy-nine dollars, Brent near eighty-four. That's partly geopolitical risk from the Strait of Hormuz tensions, but it's also just a tight physical market. Lucas: Oil's rally is real but measured. WTI is up 1.1 percent over the last five days, Brent up 1.7 percent. The spread between them has widened again, which signals geopolitical risk being priced into Brent more than WTI. But the bigger story is that energy stocks are also up — the XLE, which tracks energy sector equities, gained 3.5 percent this week. ExxonMobil is up over 5 percent. So investors are buying the equities as well as the futures. Luna: Which reinforces the growth narrative — if people were truly scared about a recession, they'd be selling energy stocks, not buying them. Lucas: Exactly. Now, I want to circle back to copper for a second, because the record high is really the headline here. But it's not just about the absolute price — it's about what it says about the economic cycle. Historically, copper leads the cycle. It peaks before the economy does. So a new high in copper suggests that the global industrial economy still has momentum, even as some indicators like CPI show inflation cooling. Luna: CPI did drop slightly in June — the headline index went from 333.98 to 332.6. That's disinflation, but not deflation. Core CPI also eased a bit. So the inflation scare from earlier in the year is fading. Lucas: Right. And the bond market is basically saying inflation is under control — the ten-year breakeven is at 2.22 percent, down from 2.23. That's very close to the Fed's target. So you've got cooling inflation, but still solid industrial demand. That's a pretty favorable environment for cyclical commodities like copper, and a challenging one for gold. Luna: What about other base metals? Are they seeing the same strength? Lucas: Aluminum and zinc are up, but not as dramatically as copper. Copper is really the standout. It's also benefiting from some supply disruptions — there was a strike at a major mine in Chile last month, and Peru's output has been slipping. So it's a confluence of factors. Luna: It's interesting — we often talk about commodities as a monolithic asset class, but right now they're telling very different stories. Copper and oil say 'go', gold and coffee say 'wait and see'. Lucas: That's exactly the takeaway. If you're a commodity investor, you can't just buy a broad fund and hope for the best. You have to be selective. The copper-gold ratio is one tool to help with that. When it's rising, lean into industrial metals. When it's falling, maybe look toward gold and defensives. Luna: And this kind of granular analysis is exactly why people listen to this show. If today's episode helped you think about commodities differently, there's a simple way to keep these kinds of deep dives coming without any ads. Lucas: Yeah, we don't run commercials, and we want to keep it that way. The model is listener-supported. If you found value in today's breakdown, you can head over to buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. It's a small gesture that goes a long way toward keeping the podcast independent. Luna: Absolutely. And we appreciate every bit of support. Now, back to the markets — I want to talk about a specific trade that's emerging from this copper-gold divergence. Lucas: Sure. One trade that some hedge funds are running is a long copper, short gold position. They're buying copper futures or ETFs and simultaneously selling gold futures. The idea is to capture the spread as the ratio continues to rise. But it's not without risk — if a geopolitical shock sends gold soaring and copper falling, you could get squeezed. Luna: What about the mining equities? Are they a better way to play this? Lucas: They can be, but they come with operational risk. Freeport-McMoRan is the big pure-play copper miner, and its stock has been rallying. But it's also exposed to geopolitical risks in Indonesia and the Americas. I think the futures or ETFs are cleaner for the macro bet, but the equities offer leverage to the upside if copper keeps climbing. Luna: So to sum up: copper is the star, gold is the laggard, and the ratio between them is a useful macro signal. And we're in a regime where growth appears to be winning over fear. Lucas: That's the takeaway. But let's see if this holds through the summer. A lot can change — especially with the Strait of Hormuz situation and the U.S.-Iran tensions in the headlines. If that escalates, oil could spike, and that might change the entire commodity calculus. Luna: All the more reason to stay tuned. Thanks for joining us on The Commodities Economy with Fexingo. Lucas: We'll be back next week with another deep dive. Until then, keep an eye on those copper prices.