ASX Trader: The biggest market rotation in your lifetime is unfolding right now
With equities among the most expensive in history, the biggest rotation in your lifetime is unfolding that’ll likely trigger a new super cycle, writes ASX Trader.
The biggest market rotation of your lifetime has already begun and it’s unfolding right now in 2025.
Since 1980, the story of global markets has been one of remarkable divergence.
Equities have surged more than 6,400 per cent, while commodities have managed only 560 per cent over the same period.
The commodities-to-equities ratio has collapsed by an extraordinary 96 per cent in the last 45 years, painting a stark picture of how far the pendulum has swung.
But markets do not operate in a vacuum.
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Capital does not vanish, it rotates.
When one asset class becomes excessively valued, money eventually seeks opportunities in its neglected counterpart.
Today, that neglected corner is commodities, which now sit at their lowest relative valuation in modern financial history.
This imbalance is setting the stage for the next Commodity Super Cycle.
Are equities expensive?
Before asking whether commodities are cheap, it’s worth asking the opposite: are equities expensive?
By most measures, the answer is yes.
• Book Value: The S&P 500 is trading well above its historical average price-to-book ratio, even higher than the tech bubble.
• Shiller CAPE (Cyclically Adjusted P/E Ratio): Currently near levels only surpassed in 2000, this metric smooths earnings over 10 years to strip out short-term distortions. It suggests equities are priced for perfection at a time of slowing growth.
•Buffett Indicator: Warren Buffett’s favoured yardstick, total U.S. stock market capitaliation relative to GDP, remains at its highest level in history, far above historical norms.
It implies that the market value of equities has outpaced the underlying economy by a wide margin.
Taken together, these signals suggest that equities are richly valued, if not outright expensive. When valuations are this elevated, any shift in capital flows can have outsized effects.
The Gold-to-Dow Ratio – A breakout with history
If there is one chart that cuts through the noise, it is the Gold-to-Dow ratio.
On quarterly candles, this ratio is breaking out to the upside, signalling that gold is beginning a phase of outperformance relative to equities.
We’ve seen this movie before. Major breakouts in this ratio have occurred at pivotal moments in market history:
• 1930s (Great Depression): Gold vastly outperformed as equity valuations collapsed.
• 1970s (Stagflation): Gold surged while equities languished, crushed by inflation and economic stagnation.
• 2000s (Dot-com Bust): A lost decade for equities coincided with a powerful commodity bull market led by gold.
Now, in the 2025, the Gold-to-Dow ratio is once again showing a decisive turn in gold’s favour just as equities are at some of the most stretched valuations in history.
Coincidence? Hardly.
History shows that when equities are this expensive, gold has consistently stepped in as the outperformer (red circles).
Why the divergence matters
The historic underperformance of commodities versus equities reflects decades of economic expansion, technological growth, and unprecedented financialization.
Investors have favoured stocks as engines of wealth creation, while commodities were largely sidelined in a low-inflation, growth-driven era.
But cycles are never permanent.
The gap between equities and commodities has reached such an extreme that even modest capital rotation could spark outsized gains in raw materials.
The seeds of a structural shift are already visible: geopolitical tensions, supply chain strains, resource nationalism, and the immense demand for metals to fuel the energy transition.
Anatomy of a commodity super cycle
Commodity booms are not uniform, they unfold in distinct phases, each driven by different forces of demand and investor psychology:
• Early Expansion → Precious metals like gold and silver are the first movers, reflecting investor anxiety and hedging against currency debasement.
• Acceleration / Boom → Industrial metals and energy take centre stage. Copper, oil, gas, and coal see explosive demand as global growth surges.
• Peak / Overheating → Energy remains resilient while precious metals stage a late surge as investors crowd in.
• Slowdown / Contraction → Industrial commodities suffer the steepest declines, while agriculture softens.
• Trough / Reset → Precious metals stabilize first, creating the foundation for the next cycle.
Where are we today?
The evidence points to the early expansion phase.
Gold and silver are already breaking out, while copper, oil, and gas have yet to follow.
This is typical of the cycle’s early innings: precious metals move first as investors reposition for inflation, uncertainty, and currency debasement.
Smart money will be watching the industrial commodities closely.
If history rhymes, the next 6–12 months could see leadership shift to copper, oil, and gas, signalling the acceleration/boom phase.
That’s when the cycle broadens, liquidity pours into hard assets, and the super cycle begins to gather unstoppable momentum.
Are we on the cusp?
With equities stretched, cheap money likely gone, and commodities deeply undervalued, the conditions resemble past inflection points where capital rotated into hard assets.
If history is a guide, the next decade could see commodities reclaim centre stage, first with gold and silver, then with the industrial building blocks of global growth.
Investors should pay attention.
The last great commodity super cycle (2000–2011) reshaped economies, lifted emerging markets, and rewrote the playbook for resource allocation.
A similar shift today, set against the backdrop of energy transition and geopolitical fragmentation could prove even more dramatic.
The Great Divergence will not last forever.
In fact, it may already be beginning to close.
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