Bank of America's global research team stated in its latest report that global financial markets are confronting three historic "decoupling" trends, while the level of global populist policies has climbed to a record high. Together, these forces are driving a structural shift in investment logic.
According to the report, the first decoupling is between gold and real interest rates: gold prices have broken their long-standing negative correlation with real rates. The second is the decoupling of the US dollar from interest rate differentials: the currency's performance has been significantly weaker than what yield spreads would typically imply. The third is the decoupling between emerging market local currency bonds and US Treasuries: their total return correlation has recently turned negative, indicating a clear divergence. This suggests that traditional allocation strategies relying on the "US Treasuries–US Dollar–Gold" framework are losing their explanatory power, and the breakdown of these correlations has itself become a new source of risk.
The report also highlights that "populism" has become a deep-seated structural force driving the current market decouplings. Historical research indicates that within 10 to 15 years after the rise of populist policies in a country, it is typically accompanied by slower economic growth, rising inflation, higher debt-to-GDP ratios, increased tariffs, and a decline in trade openness. Against the backdrop of populist policy reach hitting a historical peak and gold rallying significantly, the selection of emerging market assets should place greater emphasis on a differential analysis of "policy credibility and relative fundamentals," rather than simply relying on broad macro systemic beta.
The three major decouplings are fundamentally reshaping market dynamics. The report notes that the third decoupling, between emerging market local currency bonds and US Treasuries, is particularly noteworthy: their return correlation has turned negative. Specific data shows that the BofA ICE Emerging Markets Local Currency Government Bond Index (USD total return) has outperformed US Treasuries by 28%, approaching the historical high seen after the benchmark reset in 2013. More critically, its 52-week rolling correlation turned negative in early 2026, a rare occurrence in many years.
However, there is a significant divergence between fund flows and price action. EPFR statistics indicate a net outflow of $500 million from Asian markets year-to-date in 2026. Furthermore, client interactions reveal that investors are increasingly inclined to short rates in Asian markets, especially in economies like South Korea and Singapore where easing cycles are nearing an end and valuations are considered stretched.
The apparent disconnect between price action and capital flows not only reveals that the current market structure is becoming crowded but also signals that the risk of a short-term reversal is accumulating.
The populist wave has reached a century high. The report analyzes the "gold and real rates decoupling" and current market "surface calm"—characterized by stable oil prices and inflation expectations, equities at record highs with low volatility, and divergent EM FX performance—within the broader narrative framework of the "long-term effects of populist policies."
Citing a 2023 study from the American Economic Review, which systematically tracked populist regime cycles across 60 countries since 1900, the report notes a core finding: the current global proportion of countries led by populist leaders exceeds that of any period in the past 120 years, including historical peaks like the 1930s and 1970s.
The research indicates that within 10 to 15 years following the rise of populist forces in a country, certain trends typically emerge: economic growth slows, inflation rises, the debt-to-GDP ratio increases, tariffs go up, and trade openness declines relative to non-populist countries.
The report explains this by suggesting that populism fundamentally reflects widespread societal frustration and distrust in the efficacy of orthodox economic policies. Notably, populism is no longer a phenomenon unique to emerging markets; it has become increasingly prevalent in developed economies as well. Consequently, the report emphasizes that assessing emerging market assets should focus more on "the relative quality of policies and the relative performance of economies," rather than treating them as a homogeneous, high-risk asset class for broad allocation.
The report further points out that over the past two years, most emerging market currencies have shown a significant positive correlation with gold prices (with few exceptions like the Indonesian Rupiah). This implies that these currencies often strengthen in tandem with gold during its upward cycles.
This phenomenon resonates with the macro backdrop of global populist policy reach hitting a historical peak and gold's sustained rally. It clearly indicates that in an environment of systematically rising policy uncertainty, gold and its correlated assets are being assigned a dual role by the market: as crucial stores of value and as key barometers for macro sentiment and credit risk.
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