Stocks vs. Commodities and “Hard Assets”: What 124 Years of History Show You (Video)

Hey guys, Brian here. I hope your week’s going great.

We have talked about gold in my last few videos. I showed some stock markets priced in terms of gold, and I showed where gold was in terms of its own Elliott wave structure. Got some great feedback on those charts. So, I want to expand on that perspective a bit.

In this video, we’ll look at stock prices, not just in terms of precious metals, but in relation to the entire commodities complex. Stay with us.

All right guys. Welcome back. Let’s just start with an overview here, using the Bloomberg Commodity Index.

So, this is just futures prices. It’s a basket of commodities back through the lows in 2020. Big picture. Five up, three down. That’s painting with a broad brush, I know. If we want to get a little more detailed, I’d say it’s a very good-looking five up and a messy three down.

There are other ways to count that decline. But we are in a previous fourth wave. We have turned back up. We have seen higher lows and higher highs. I’d say if we maybe break 110 or so on the upside, pretty good confirmation that the trend is back up.

Now, some individual sectors supporting this perspective. This is the S&P GSCI Grains Index, so just a benchmark for corn and soybeans, wheat, all of the grains market. It is more or less the same look, right? Five up, three down over the past four or five years. So, here we get a little more confidence that we’re on the right track.

I also talked to some of our commodity guys in Pro Services, and they have had a great run with corn this year. For whatever reason, the waves have been especially clear. So, if you trade commodities and you want to check out their services, I’ll put a link in the comments.

Now, for the generalists — myself included — I think it’s important to get a perspective of the value of hard assets. Where are hard assets going relative to financial assets? That’s what we’re trying to do today.

This is Dow CRB back through the 1900s. So, it’s just stocks priced in terms of commodities. The inset of weekly prices here shows that the top was 2020, right? The ratio is falling. So, even though stocks remain strong, financial asset values are falling relative to hard assets, and we think that’s an important trend that will continue.

Now, one final chart. This is just a European version of the same thing. It’s a euro-denominated commodity index, but now we’re dividing it by the Stoxx 600.

So, here the ratio drops when investors get excited about financial things, and it rises when financial things fall out of favor. You can see the dot-com bubble, the financial bubble in ’07. On the other end, there’s the dot-com bust in ’03. There’s the global financial crisis, there are European sovereign debt crises.

What’s compelling to me here is, again, we see that five up, three down on the right side since 2020. We don’t always see Elliott waves in ratios like this. But this pattern is fairly textbook. And if it’s operative, this ratio is going higher.

Maybe that means stocks fall, maybe it means commodities rise. Don’t really know. Maybe it’s a little of both. But that is the picture. Essentially, hard assets getting more valuable relative to financial assets.

So, let me know what you think in the comments. Thanks for watching. Thanks for reading, and I will see you again in the next video.

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