So far in 2026 it has been a wild ride for those in the metals markets, whether you are looking at base metals or precious metals. The top chart shows the daily Ichimoku chart for generic front-month Copper futures. It has been a bull market and a positive trend since the summer of 2025; however, the latest price action is giving some signals that the move could be over-extended. The RSI is moving lower having just registered very overbought conditions and the MACD is crossing over and starting to turn lower, indicating the trend could be changing, or at least stabilizing. One positive sign is that the lagging indicator is still well above the Ichimoku cloud, suggesting any move lower is likely more of a consolidation pattern than a change in trend. It is not such a positive interpretation of the generic front-month Gold futures chart. Prices have broken below the Ichimoku cloud, as has the lagging span. The price action is clearly bearish with a support level a couple hundred points lower than previous resistance that is now supported. The RSI suggests markets are nowhere close to exhaustion on this move. Simply looking at these two charts, a trader is likely bearish on each, but would be more bearish on the Gold chart than the Copper chart. 

Comparing the two futures on a spread basis over the last 3 years suggests there could be potential for some relative upside in Copper vis-a-vis Gold. The historical price spread between the two is about 1.5 standard deviations from the mean of the last 3 years. After a strong relative move in Gold from early 2024 through early 2026, there are signs that Copper might be trying to make a relative comeback. 

Having hit lower lows in February and March of this year, Copper has put in a series of higher lows vs. Gold over the last few months. Could this be the beginning of a relative move higher in Copper vs. Gold that brings the spread back toward the mean in the coming months?

No less than the last two “Bond Kings” in the U.S. – Bill Gross, ex of PIMCO, and Jeffrey Gundlach of Doubleline – have each said that the Copper-to-Gold ratio gives a very good indication of where the U.S. 10-Year Treasury Yield should be. Another interpretation is simply that the co-movement between the relative futures and the bond yields is driven by similar things. Right now, the bigger catalyst in the market may be that global bond yields – not just in the U.S. but in all developed markets – are moving higher. However, if one compares the relative price of Metals futures, they are lagging the move in bond yields. While the “Bond Kings” would tell you that metals may indicate where yields should be, the converse is also true i.e., yields could indicate where relative metals should be. Why can I say this? The bottom chart may give me an indication. The bottom chart is the same relative futures price between generic front-month Copper and Gold, and I compare it to the U.S. Institute of Supply Management (ISM). The ISM has moved higher over the last year, indicating a strong U.S. economy. The U.S. 10-Year Yield may also indicate a stronger U..S economy based on the level of yields. However, the relative move of Copper to Gold is not indicated yet even though copper is more of a “growth” metal, and Gold is more of a store of value. Does the metals market need to catch up to where the bond market and the economic data are pointing to?

Turning to the volatility markets to see what is priced in, I look at the CVOL tool for both Copper and Gold. The top chart shows the CVOL of each and I can see that on a relative basis; Copper volatility appears more elevated vs. the volatility of Gold. Gold volatility is the lowest of 2026 and the low going back to the holiday season last year. On the flip side, Copper volatility is still relatively elevated and has not reverted to where it was at the end of last year before the markets got more volatile. 

Following the administration's unexpected decision to exempt cathodes from tariffs, Copper saw its most significant one-day selloff in July of last year. Currently, a potential decision regarding a phased tariff is expected to be announced by the end of June, though it is possible this announcement will occur after June 8. The heightened implied volatility suggests the market is anticipating a substantial move in either direction depending on the outcome of this decision.

Looking now at skew ratio, which compares the relative demand of upside vs. downside options for each metal, it is quite apparent there is still a lot of relative demand for Copper upside vs. downside with the skew ratio near the highest of last year. On the other hand, Gold skew ratio is somewhat balanced right now, as it has been for the last several months. The biggest takeaway here is that Copper volatility looks very expensive vs. Gold volatility, where both the level and the relative demand appear much more muted. 

Staying in the options market, it is time to look at the implied volatility surface for both Gold and Copper options in an attempt to find the expiration and the delta where there may be relative volatility mismatches in pricing. The Gold is to capture the next ISM economic data release which comes out in early June. If this reading shows continued strength in the economy, as the bond market may be indicating, there could be relative upside in Copper options vs. Gold options. Given there are daily expirations in both Copper and Gold, I can look at every day after the release of the data to find potentially the best expression of the views. The setup right now looks like I should be funding the purchase of Gold puts by selling Copper puts. As I look at the implied volatility surface for each, I see that the Monday expiration after the ISM release on June 1 is potentially the most advantageous. This is because the already-discounted Gold options are cheapest on this day, but the relatively more expensive Copper options are not as discounted. Looking at 35-delta put options on each day, I get options that are a bit more out of the money but trade at a similar implied volatility. This is likely the best place for me to look to set up a spread trade. 

For many traders, it may not be that common to look at precious metals vs. base metals. However, I can see there is a good relationship in the relative movement between the 2 and the U.S. 10-Year Yields or the U.S. ISM economic data. So, the relative value trade may not be that crazy. Copper implied volatility looks quite expensive vs. Gold implied volatility as well, meaning I might want to buy Gold options and sell Copper options. Finally, the Copper technical chart looks more like it is consolidating, while Gold appears more likely that it is headed lower. This all points to a spread where traders buy Gold puts and fund this trade by selling Copper puts. 

Copper futures have a contract size of 25,000 pounds and a contract value of about $159,000. Gold futures have a contract size of 100 troy ounces and a contract value of about $452,000. This means the ratio to be dollar neutral is roughly 2.84 to 1. However, I can set up a zero-cost trade at a ratio of 1.5 to 1 instead of almost double that at 2.84 to 1. 

The Copper 6.25 puts that are 35 delta and expire a week after the ISM cost .0763 per option. Selling 3 units of these options takes in $5722. If I use that premium, I can buy 2 35 delta gold puts at 31.2 per option which costs $6240. Not quite zero cost but close enough. As you can see from the expected return chart of each, I benefit from a move lower in Gold but get hurt from a move lower in Copper. Since the relative spread of Copper to Gold is 1.5 standard deviations below the mean, the bet is that as Gold moves lower, Copper stays roughly the same. This would mean that a trader with this spread benefits as Gold moves lower but Copper does not. If both futures move higher, the trader only loses the relative cost of the spread or about $500. The biggest risk is that Metal futures all move lower and Copper underperforms Gold. This seems unlikely given how much Copper has already lagged Gold and given where both the U.S. 10-Year Yield as well as ISM are. However, it is a possibility that traders need to be aware of. 

With the flexibility of daily expirations across a range of products, CME Group allows traders to set up relative value trades that may help them take advantage of market dislocations. 

Good luck trading!

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