"Copper prices falling and gold prices rising mean that the dollar is going to weaken, and a weaker dollar versus the yen tends to lead to a decline in Japanese stocks," Takeshi Yamaguchi, who helps oversee $134 billion at Sumitomo Mitsui Asset in Tokyo, said in a telephone interview this week. "Changes in the copper-gold ratio are an early predictor of how Japan's market may move."
The CHART OF THE DAY shows how moves in the Nikkei gauge tend to follow changes in the metals ratio, which is derived by dividing the price of copper futures by those for gold. While contracts on copper, one of the world's most used metals, indicate bets on global demand, gold prices signal anticipated risk, as investors regard the precious metal as a safe haven, Yamaguchi said. A decline in the ratio signals pessimists outweigh optimists, he said.
Copper futures for July delivery have fallen about 11 percent from this year's high on Feb. 14, while gold reached a record $1,577.57 on May 2, advancing 7.5 percent this year after a 30 percent jump in 2010. Copper, used in products such as cars, electronics, building materials and power cables, is the world's third-most widely used metal, after iron and aluminum. The Nikkei 225 fell 7.4 percent this year, more than any other benchmark for developed market stocks, according to data compiled by Bloomberg.
After the measure tracking copper and gold futures reached last year's high on April 15, the gauge then dropped 28 percent to last year's low on June 8. The Nikkei fell 22 percent from its high last year on April 5 to its 2010 low on Aug. 31.
"If I see the ratio for the metals declining but the Nikkei 225 is rising, I take it as a signal to sell Japanese stocks," said Yamaguchi. "I find this signal as very helpful for my trading," he said. "The downwards trend is likely to continue on the Nikkei 225 for a while." For the latest updates PRESS CTR + D or visit Stock Market news Today
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