Gold Crushes Silver During Stagflation

Hey There Income Hunters,

Silver and gold often team up as an alternative to paper currency, yet they react very differently depending on the economic environment.

Knowing which will outperform can make a huge difference to your profits,

especially when precious metals are a necessary hedge for inflation.

Today, the economy is shifting to a phase of decelerating growth and inflation, known also as stagflation.

Along with stagflation we are also in a global shift away from the dollar and towards alternative currencies like the Euro, the Chinese yuan and even Bitcoin … 

This heavily favors gold since global central banks may choose to back their paper currency with gold and, to a much lesser extent, silver.

Current Gold and Silver Trends

The economy has recently shifted as the Delta variant further delayed full reopening of economies globally … 

This delay will extend the supply chain bottlenecks, causing a stickiness of price hikes even as growth slows.

It’s a typical stagflationary scenario and it will last a while.

The difference between silver and gold’s price performance is that silver is also closely tied to economic performance. Gold, however, is most closely impacted by money supply and the dollar.

Let’s break it down and see where Gold could go from here …

Gold Tracks

You see, Gold has always tracked the dollar closely because a weaker dollar forces consumers to buy foreign goods at higher prices. This is why prices rise in the US.

The goods Americans buy are mostly imported from abroad, so a weaker dollar means stronger foreign currencies, hence we pay higher prices for goods we import.

Now, since we are at the end of our debt cycle, our central bank, the Fed, is flooding the market with more dollars in order to reduce government debt — and more dollars are then available to pay down a fixed amount of debt.

So, as the chart below shows, gold’s price is not reacting to the short-term rise in the price of the dollar (dollar scale is inverted) …

I expect Gold will continue to benefit from the demand of investors and foreign central banks who demand an alternative to a fragile dollar.

Bring It Home

Gold has traded very well relative to other inflation hedge alternatives like silver and (especially) energy, which has been the worst performing sector for the past month …

I will be watching the economic data closely in the weeks ahead, and I think increasing exposure to silver and oil will make sense in the near-term … 

Still, with all the geopolitical uncertainty (Afghanistan) and the economic uncertainty (Delta variant), Gold provides a most efficient hedge and speculative asset in the current environment.

Have a great weekend and as always …

Live and Trade With Passion My Friends,

Griff

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