The divergence between stocks and commodities

There is a reason for the outflows from commodity investing. It has underperformed relative to equities.  This is not a simple difference in returns but a significant gap with trends moving in opposite directions for over a year. The divergence began in the second half of 2011.

Interestingly, the difference really gained after the announcement of Operation Twist in September of 2011 and QE3 which was announced in September 2012. It is odd that commodities have diverged from other risky asset classes. Real rates have until recently stayed negative over this period which is a driver of commodity prices and causes a search or reach for yield.

While there are strong reasons for commodities to move lower on the move in real rates and the continued dollar  rally, there is no strong reason why there should be this general decline while equities have moved higher.