Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and Silver Outperform Stocks and Bonds during Stagflation

Commodities / Gold and Silver 2022 May 07, 2022 - 06:01 PM GMT

By: MoneyMetals

Commodities

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-fueled 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 policymakers 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.

By Mike Gleason

MoneyMetals.com

Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2022 Mike Gleason - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in