Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Gold, Silver Outperform Stocks, Bonds During Stagflation

By Stefan GleasonMarket OverviewMay 06, 2022 04:23PM ET
Gold, Silver Outperform Stocks, Bonds During Stagflation
By Stefan Gleason   |  May 06, 2022 04:23PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

As turmoil in financial markets unnerves investors, a larger economic crisis may be starting to unfold.

The Federal Reserve’s first steps toward tightening monetary policy are exposing vulnerabilities in the highly leveraged economy. The Fed spent years injecting the economy with artificial stimulus. Now, it is trying to take that stimulus away without causing a crash.

On Wednesday, the Fed raised its benchmark interest rate by 50 basis points. That was the central bank’s biggest hike in 22 years.

Fed officials are trying to restore their wrecked credibility on fighting inflation. At the same time, they are trying to engineer a “soft landing” for the economy. Achieving both objectives may prove to be impossible.

As wrong as Fed chairman Jerome Powell was about inflation being transitory, he may be just as wrong about the economy avoiding a recession.

Steve Forbes warned Fox Business viewers that the central bank’s manipulation of interest rates may induce the economy to go from Fed-fuelled boom to bust.

Steve Forbes:

When they use the word “soft landing,” that's Fed speak, they hope to slow the economy, but not push it into a recession.

Jerome Powell:

It's a strong economy, and nothing about it suggests that it's close to or vulnerable to a recession.

Steve Forbes:

What it (the Fed) should be doing instead of trying to manipulate the activity of the economy and this idea that if we have a lot of people doing things that's bad for inflation because prices go up, it's nonsense. History shows it's nonsense. Just focus… they should say… "We're focusing on a stable value of the dollar. We're looking at commodity prices. We're looking at the gold price."

Gold and silver had another rough week, but platinum has shown some relative strength.

Other markets are faring far worse than precious metals this year. The bond market has put in its worst performance in decades. And stock market indexes are at risk of moving from correction to crash under the weight of higher interest rates, higher inflation and a deteriorating economy.

Last week’s shocker of a GDP report showed the economy contracting by 1.4% in the first quarter. While some dismiss it as a statistical fluke, other signs of a slowing economy are gathering.

This week’s report on productivity showed hourly output per worker plunging at a 7.5% rate – the worst reading since 1947.

Meanwhile, the U.S. trade deficit grew to a record $109 billion.

The extreme swings being evidenced in markets and the economy are the result of monetary policy shifting from ultra-accommodative to less accommodative.

Every time the Fed embarks on a rate hiking campaign, it causes booms to go bust. Easy money policies that enabled and fostered the booms never get fully unwound, though. There is only so much pain Wall Street and Washington, D.C. will tolerate before imploring the Fed to begin easing again.

The Fed will never get to the point of conquering inflation and promoting true price stability. The incentives for policy-makers to continue pursuing excess currency creation are simply too great.

That doesn’t mean Fed policies won’t continue to inflict damage to the bond market, the stock market, and the economy. Powell has all but promised additional rate hikes in future Fed meetings.

With rates heading higher, at least for the time being, inflation continuing to rage, and the economy sliding toward a contraction, there are few places for investors to hide. During periods of stagflation, most asset classes lose value in real terms.

That’s what happened during the stagflationary 1970s. Rates rose, bond values fell, and stock market indexes showed negative real returns. In fact, when adjusted for inflation, the Dow Jones Industrial Average lost 75% of its value from its pre-1970 peak to its 1982 low.

There were few places to hide during the 1970s besides precious metals. From 1970 through 1979 – which included periods when the Fed was hiking rates aggressively – gold surged 15 times higher. That was more than enough to generate positive returns after inflation!

Silver during the late 1970s performed even better, leading to a spectacular price spike that has never been exceeded.

Even if we don’t see another precious metals bull run of similar magnitude this decade, there is still a good chance that gold and silver will hold up better in this challenging environment than both stocks and bonds. And there is still time for investors to position themselves in physical bullion before it becomes too scarce or too expensive to obtain.

Mike Gleason is a director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.

Gold, Silver Outperform Stocks, Bonds During Stagflation

Related Articles

Gold, Silver Outperform Stocks, Bonds During Stagflation

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email