Few Are Talking About Stagflation But They Should Be - The Last Bout Of Stagflation Was Extremely Bullish For Gold And Silver As It Will Be This Time Around
There is a big story developing in the debt market that few are talking about. The bond vigilantes are on a buyers strike as they are driving yields up. This suggests there are a few things that are causing them concern.
One is the unprecedented supply of debt, plus concerns about weaker economic growth and that a second wave of inflation is right around the corner.
The unprecedented supply is here to stay, while their worries about economic growth and inflation are pointing toward stagflation.
Although the Fed won’t mention stagflation, their projections of economic growth and inflation are suggesting that is what they see coming in 2025. At the December meeting, they polled the members and their forecasts are predicting economic growth to be well below inflation. That is stagflation even if they aren’t coming to that conclusion.
The last time there was significant stagflation in America it was extremely bullish for gold and silver. Both metals are off to a very strong start in 2025.
Supply of debt is unprecedented and looks to stay that way for many years into the future. Elon Musk campaigned for Trump saying that his department of government efficiency would slash spending by $2 trillion. Before Trump has taken office, Elon Musk in the last couple of days has changed his tune saying that they hope to cut spending by $1 trillion.
When Trump gets in, Elon Musk is going to quickly realize that cutting government spending is extremely hard because politicians on both sides of the aisle love unsustainable spending and debt growth. It is how they pay off their financial supporters and get kickbacks that help them get rich while in office. Stopping that is going to be a lot harder than Elon Musk can fathom.
Adding to the problem is that Trump’s plans for mass deportation and tariffs will slow the economy and also drive up inflation. The bond vigilantes see the writing on the wall about these issues which is why they are on a buyer’s strike and driving yields up.
What is happening in the debt market with yields is a troublesome problem for the Fed that they will have to deal with sooner or later. They are saying that the jobs market, economy and their rate policy are great but the bond vigilantes disagree and their reluctance to buy is not transient.
The Fed committee members are forecasting soft economic growth, while also realizing that their estimates for inflation coming down have fallen apart. Which suggests they would like to lower rates to help the economy, but have to also worry about driving inflation higher.
They love to talk about their dual mandate on maximum employment and stable prices, but they have two unstated mandates they also need to worry about. Their actions affect Wall Street stocks and the debt market.
Wall Street stocks have been coming off their highs since December and early in January they are getting softer. They are pricing in that the rate cutting cycle is over and could be on hold until after the summer.
Wall Street stocks were at extreme valuations that had them priced for perfection, but the earnings are soft while the prices of the stocks are strong. This dichotomy happens prior to corrections that although the Fed doesn’t call the stock market one of their mandates they have to be careful about throwing Wall Street under the bus. Which is another reason they want to cut rates.
Another unspoken mandate for the Fed is the debt market. With an unprecedented supply of debt and the bond vigilantes being on a buyer’s strike, things could get out of control if the buyer of last resort doesn’t get back into the QE business.
With the winds of stagflation gaining momentum, it is no wonder that gold and silver are having a great start to the year.
2024 was an exceptionally good year for gold and it is looking to have another stellar year in 2025. Last year saw silver improve, but it has yet to really join the gold bull market. Meanwhile silver has gone through a few years of significant supply deficits. Which puts it into a fantastic position for impressive strength in 2025.
The gold and silver stocks haven’t really entered the gold bull market either. Yes, the best in breed gold miners had a great year in 2025 by significantly outperforming gold. But, it is important to point out that they were coming off a very low base early in 2024.
Gold mine developers with high quality projects and explorers with important discoveries have come off the canvas, but they were also coming off very low bases.
When one considers the valuations of gold and silver stocks, they are still being priced at historically low valuations for their gold and silver in the ground. The last time I saw valuations like this was in the early days of the 2001 to 2011 gold and metals bull market. They are without a doubt coiled springs as are gold and silver.
It is time for the gold, silver and miners to amp up their marketing efforts. There has never been a better time to promote gold, silver, copper and other metals, the importance of mining to produce the metals needed for everything in the modern world. And especially to be telling their own stories about efforts for growth.
I see plenty of underappreciated value in the gold and silver stocks, especially down the food chain.
Last year, the gold and silver companies were promoting the virtues of the metals and their companies, but they were somewhat subdued which has to do with how the market is valuing gold and silver in the ground.
It is time for the gold and silver companies to aggressively get out on digital marketing platforms to tell their stories and the bullish arguments for gold and silver in a much more confident fashion.
Stagflation is an extremely bullish situation for gold and silver. They are ready to go much higher in 2025 and see a significant improvement in how the market values gold and silver in the ground.
All the best,
Allan Barry Laboucan
