Copper/Gold Spread: The Last Three Trend Change Signals Were Correct. How About This One?

Pedal to the Metal

At yesterday’s close, the December copper(x2)/gold spread closed above the declining 50-day Moving Average for two consecutive days. This triggered a bullish trend change. The blog initiated a hypothetical trade by buying two December copper contracts at 243.65 (total contract value of $121,825) and simultaneously selling one December gold contract at $1,102.00 (contract value of $110,200). This establishes a long position at +$11,625 (premium copper). Initially, the exit strategy is to liquidate the spread on a two-consecutive day close below -$3,000 (premium gold).

December Copper (x2) Gold spread daily

December Copper (x2) Gold spread daily

If recent history is any indication, the spread should now rocket several thousand dollars higher. This is the fourth trend change signal that has been triggered by way of a two-day close above/below the 50-day MA since late November. The three prior signals were all accurate and followed by moves of $17k to $34k.

Furthermore, history shows that the copper(x2)/gold spread has always recovered after experiencing an inversion. The inversion in January was followed by a run to nearly +$29k by early May. A return to this level could be a minimum expectation. If this level is surpassed, the spread may have the potential to make a run for the late 2013 peak near +$50k.

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