Relative performance line between the Commodity Index (CRB) and Global Bonds can indicate whether the time ahead is inflationary or not. The primary case (Fig 1.) illustrates that Bonds have outperformed CRB and are now at historical extreme of more than a decade. There has been a relentless rise in global bonds, but that has not been the case with commodities, which have slowed down and stagnated a bit compared to the controlled interest rate situation.
So where does this leave us? Extremes are unsustainable, especially when they become of a multiyear nature. Above this we have a non confirmation on the relative line (Fig. 2). This suggests that over the next few years. Bonds should underperform Commodities. A rising CRB vs. Bond line is inflationary and favors inflation assets. All of metals, energy, materials should benefit from this case. Globally these inflation stocks should outperform the market.
But before we start accumulating and buying we should keep in mind the intermediate multi month situation for CRB vs. Bond. The intermediate multi week situation suggests that bonds have already broken a key trendline (Fig. 3) and in case of any bounce back should only retest the trendline as previous supports become resistances. The bounce back on global bonds, could last for a few weeks. This is the same period one could see some sell off in commodities. After this intermediate multi week time frame, which one could see a commodity drawdown accompanied by a panic sentiment, the next leg of commodity outperformance against bonds for multi years should begin.
