We're Living in a Materials World
Gold's Breakout Signals the End of the Digital Assets Era and the Rise of Emerging Markets
By Mark Galasiewski
Editor, Asian-Pacific Financial Forecast
Elliott Wave International
Viewing global asset classes through the lens of emerging markets provides a perspective that is often missed by analysts who focus on developed markets. That perspective, which is colored by the role that commodities play in the global economy, has been invaluable during the past several years. For example, it helped us to predict, in February 2020, the end of the 2008-2020 bear market in the Bloomberg Commodity Index to within 2% of its price low two months later and then to correctly forecast "enormous upside for commodities, price inflation and interest rates," as we put it in September 2020, when the U.S. 10-year yield was 0.72%.
While the inflationary boom that has followed since that time caught most of the world off guard, most conventional observers still appear to see it as an aberration from the long disinflationary trend that preceded it -- a one-off byproduct of the Covid-19 pandemic. If only the Fed will continue to lower interest rates, so the conventional wisdom goes, then the trend toward lower rates of inflation will resume and the now AI-led good times will continue.
However, long-term patterns in commodities and interest rates beg to differ with that line of thinking. Conventional observers -- which means most people -- are completely unprepared for the extent of the long-term inflationary trend that began in 2020. Here are the most important trends that are likely to unfold in global financial markets for the next decade or longer based on long-term Elliott wave patterns in various asset classes:
- The global infotech sector, represented by America's Nasdaq Index, is approaching the end of a five-wave advance that began in 2003. The cryptocurrency sector, which was spawned by the infotech sector toward the end of the global financial crisis of 2008, has ebbed and flowed with infotech since that time.
- The leading cryptocurrency, bitcoin, which accounts for about 60% of the total market cap of all cryptocurrencies, is approaching the end of a five-wave advance from 2008 in line with the five-wave advance in the Nasdaq. The parallel trends in the Nasdaq and bitcoin are not a coincidence; they are a byproduct of the same animal spirits that have made infotech the dominant asset class of the past several decades.
- As the intangible or digital assets enter the final years of their era of dominance, they have begun to pass the baton to physical or material assets. The Bloomberg Commodity Index began a large third-wave advance in 2020 that could last as long as a few decades and will likely be paralleled by rising interest rates, such as the U.S. 10-Year Bond Yield. The dramatic rise in the prices of almost everything since 2020 is an early expression of this new era.
- The recent rise of gold, which is now the leading physical asset, marks it as the new bitcoin. The metal's breakout in early 2024 from a 13-year net sideways trend is as significant for materials as bitcoin's initial advance from 2009 and the Nasdaq's 2012 breakout were for infotech. The lagging behavior of gold miners in recent years -- it's typical of producers to underperform their underlying commodities early in bull markets -- simply confirms that most market participants are completely unaware of how large gold's bull market will be and how long the new inflationary trend will last.
- Gold's breakout is also a bullish sign for emerging markets, which -- like commodities -- underperformed infotech after 2011. In fact, gold has ebbed and flowed with the iShares MSCI Emerging Markets ETF (NYSE: EEM) since 2011. Our wave counts indicate that the two asset classes should continue to advance impulsively for years to come...
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