Stagflation: The Looming Economic Threat and How Gold & Silver Can Help Shield Your Wealth

What Is Stagflation?

Most investors are familiar with two basic economic climates: booms, where the economy grows, jobs are plentiful, and inflation might rise moderately, and recessions, where growth slows, unemployment rises, and inflation typically drops. But what happens when the economy stalls and inflation still keeps rising?

That’s stagflation - a rare and deeply troubling economic condition where rising prices collide with stagnant growth and a weakening job market. It’s the worst of both worlds: you’re earning less, the economy is slowing down, and your dollars don't go as far as they used to. Unlike a standard recession, where lower demand usually cools prices, stagflation defies expectations. Prices keep climbing even as business activity and consumer confidence drop.

Why Is This a Big Deal?

Because it breaks the traditional rules of economics. Normally, inflation and unemployment move in opposite directions. When demand falls, so do prices, giving consumers some relief. But stagflation traps the economy in a cycle where inflation doesn't respond to shrinking growth. That leaves consumers squeezed, businesses uncertain, and policymakers with fewer options.

This kind of environment wreaked havoc on markets in the 1970s, when Americans experienced gas lines, double-digit inflation, and rising unemployment, even as stocks struggled and the dollar lost value.

Today, many economists and financial analysts are sounding the alarm that we may be heading toward a similar scenario. And if they're right, your portfolio could face major pressure - unless you've positioned yourself in assets built to weather this kind of storm.

Why Is Stagflation Back in the Headlines?

Stagflation, once thought to be a thing of the 1970s, is reappearing in financial news headlines as key warning signs converge. Inflation, while lower than its 2022 peak, remains stubborn. At the same time, economic growth is slowing. Recent GDP numbers show deceleration, and high interest rates make borrowing more expensive for consumers and businesses.

As inflation persists, the U.S. dollar is steadily losing purchasing power, making everyday goods and long-term savings more expensive in real terms.

The labor market, which has held strong, is beginning to weaken. Job growth is cooling, wage increases are moderating, and layoffs are rising. If this continues while inflation remains elevated, it sets the stage for stagflation.

This troubling mix is why economists and investors are increasingly sounding the alarm-and why now may be the time to rethink traditional portfolio strategies.

The 1970s: A Case Study in Stagflation's Destruction

Let's take a quick look at the last time stagflation dominated the U.S. economy:

• Between 1973 and 1982, the U.S. suffered through two recessions and double-digit inflation.
  
• Unemployment hit 10.8% in 1982.
  
• The stock market delivered negative real returns.
  
• Meanwhile, gold surged from $35 an ounce in 1971 to over $800 by 1980.
  
• Silver jumped from under $2 to nearly $50 during the same period, peaking in 1980.
  

In this environment, precious metals proved their worth as real money, offering refuge while paper assets eroded.

Why Gold and Silver Shine During Stagflation

In a stagflationary environment, traditional assets like stocks and bonds often struggle. That's why precious metals-particularly gold and silver-have historically outperformed during periods of economic distress and inflationary pressure.

Gold has long been viewed as a hedge against inflation and currency devaluation. When the dollar weakens and prices rise, investors seek out tangible assets that can hold their value. Silver shares many of the same inflation-resistant qualities, with the added benefit of industrial demand that can support its price even during broader market weakness.

Beyond performance, metals offer something equally important in uncertain times: psychological safety. Investors turn to gold and silver not just for returns, but for security. When confidence in government policy and fiat currency wavers, owning physical assets with intrinsic value can become a form of financial self-defense.

Major analysts, like JPMorgan and Allianz, have flagged stagflation as a credible risk for the global economy. If the Federal Reserve keeps interest rates high to fight inflation, the cost of capital rises, pushing the economy closer to recession. If they lower rates too soon, inflation could spike again. It’s a no-win scenario for policymakers, but a strategic opportunity for investors who prepare.

Protect Your Wealth Before the Storm

We may not be in full-blown stagflation yet, but the warning signs are flashing. For anyone concerned about preserving their purchasing power and safeguarding wealth from market volatility, now is the time to consider gold and silver.

Whether you’re hedging against inflation, diversifying your retirement portfolio, or simply looking to hold real money, precious metals can offer a proven solution, especially in uncertain times.

To learn how you can add gold or silver to your portfolio today, call Lear Capital at 855-271-2873. One of our specialists will help you take advantage of current market conditions before prices move even higher.