If The Death Spiral Of Debt And Alarming Cost Of Servicing Debt Didn't Get Generalist Investors Excited About Gold And Gold Stocks - Wait Until They See What Stagflation Does For Gold And Gold Stocks

Wall Street stocks got hit pretty hard on Friday with the Dow down a couple percent, the S&P 500 was down 2.38% and the Nasdaq was smacked down for 3.15%. While they were being sold off, gold had another strong day and closed at a new record high.

Considering that stocks were under pressure, the gold miners hung in like champs showing plenty of relative strength.

Tariffs spooked the Wall Street stocks, as did inflation, consumers are worried about slowing economic growth as are company executives. It is starting to become clear that consumers' worries are not confined to political affiliation or demographics, everybody is worried about growth and inflation. Company leaders from Main Street to Wall Street have the same worries.

As I had predicted in reports over the past few months, there would be and has been an increase in the Wall Street analysts, economists and financial media folks talking about stagflation. It still hasn’t become a front-page topic, but that won’t take long.

During 2024, stagflation was an emerging economic problem. But, Trump’s policies of mass deportations and tariffs are making it much worse. Mass deportations have a fairly immediate effect on economic growth and inflation. The mass deportations take consumers and workers out of the economy which causes slower growth and tariffs cause similar problems with inflation and economic growth. The uncertainty of Trump’s flipping and flopping makes it hard on planning for consumers and corporate leaders.

Talking heads in financial media, as well as Powell and others at the Fed are trying to spin tariffs as only being transitory. Yes, they brought that word out for another round after using it in the past so incorrectly.

It is wishful thinking as some tariffs will be rolled out, companies will try to eat it for a while because passing them on to stressed consumers won’t be easy. So, it will hit consumers over time, some immediately, while others will be passed on later. Companies won’t be able to keep from passing on the tariffs for very long which will cause the economy to slow down in a fairly rapid fashion.

Even before the mass deportations and tariffs, inflation has been much more persistent than the Fed anticipated. They have been saying for several months that they have needed to adjust their projections because inflation has been stronger than their models forecasted.

The Fed has been forecasting slower growth than 2% for the past couple meetings with inflation creeping close to 3%. Which suggests they have resigned to the fact that stagflation is baked in the cake.

Consumers and corporate leaders are seeing much more significant stagflation as they see the potential for the economy to slow down to close to a recession or even dip into one. While they also see inflation kicking in to nearly 4% this year and a similar amount or more during the next five years.

These projections are coming in before the mass deportations and tariffs are showing up in the economic statistics.

Of course some of this is up in the air. The persistent inflation is not, neither is the slowing economy and increase in inflation due to mass deportations. I highly doubt that mass deportations will be curtailed. The ramifications from tariffs are harder to gauge due to Trump constantly changing his mind which could be affected by the messages Wall Street is sending that they hate tariffs.

Trump seems dead set on tariffs and having trade wars with all the key trading partners of America. He even went as far as saying he ‘couldn’t care less’ if car prices rise due to tariffs. Which is a stunning statement that says he doesn’t care about the car companies, or the American workers making them, nor the American consumers that buy them.

Gone are the days of Trump’s campaign when he promised that he would get inflation down immediately upon taking office. Inflation hasn’t come down, even before the mass deportations and tariffs and look to gain momentum very soon.

He doesn’t care about inflation in cars and is ramping things up with tariffs on all products coming from key trading partners. Some of his wishful thinking supporters believe that the tariffs threats are bargaining salvos, and that they won’t last long. The reality that he wants trade wars with every trading partner certainly doesn’t suggest that he can bluff his way to new trading deals.

Many outside America see him as untrustworthy, rightfully so, when it comes to new trading deals. The tariffs on American trading partners and those on American exports could be around for a significant amount of time as Trump would have to stand down and I don’t see him doing that any time soon. His bullying tactics have enough support from his MAGA fans and many on his team.

As all of these issues are playing out, Wall Street stocks and tech stocks are in a correction that is nearing 10% for DJIA and the S&P 500. While NASDAQ has already exceeded a 10% correction led by the weakness in the MAG 7 stocks.

It looks like the Mag 7 stocks have a rough road ahead. Apple is within a couple of days from a Death Cross. Alphabet is under the 200-day moving average and around a week or less from their own Death Cross. Amazon is under the 200-day moving average and around 2 weeks from a Death Cross. META is still trading above the 200-day moving average and hanging in the best among the group. MSFT has already gone through a Death Cross and looks to be in a significant correction. NVDA has also gone through a Death Cross as some of the bloom has left the rose for AI stocks, they are the worst performer of the Mag 7. Tesla is under the 200-day and looks to be a week or so from a Death Cross. The Mag 7 is looking much more like the Nag 7 these days.

Since Bitcoin topped at nearly $110k, it has been in a serious correction that looks like it will fill the gap down to the average price of those that bought on the ETF hype. During the excitement of the ETFs coming out, the average buyer is in for around $65k. If it falls below that level, then the next support is not until around $20k. Between $65k and $20k, plenty of Bitcoin miners start losing money and if that goes on for any substantial period of time, then the entire technology backbone of it crumbles. I think that is going to happen, and if it does, then it could trade all the way down to $10k, which is around the price the lowest cost miners still scratch out some profits.

Bitcoin, Wall Street stocks, tech stocks and the MAG 7 don’t look like very good places for investors to safely park their money. On the other hand, the gold miners have a very bullish outlook.

The high-cost miners are making around $1000 per ounce they produce and the low-cost miners are selling gold for double what it costs them to mine gold. They are free cash flow machines and it looks to get even better as gold is a rock star.

Day by day, more investors are realizing that the debt and fiat currency system is broken beyond repair. The Death Spiral of Debt is getting worse as the cost of servicing the debt is rising at an unprecedented pace. Which is why gold is trading at record highs against every fiat currency, including the world reserve currency.

In fact, gold is regaining its position as an important reserve currency having surpassed the Euro in 2024. At the same time, the US dollar has also lost around 10% of its position as the world reserve currency.

I can see a path for gold to become the number one reserve currency as it has nobody printing debt and fiat currency behind it. A key pillar of my argument on why I made the argument in 2024 that gold will hit $20k per ounce within 10 years because even though gold is trading at record highs, it still only backs up the worldwide debt by a couple of percent. A 10% backing of debt would be better, 20-30% would be healthy and 40% or more the healthiest.

Many gold bulls believe that gold is trading like the top insurance policy against a challenging market for Wall Street, tech stocks and potential economic problems. I don’t agree. What I see happening is that the world is in the midst of the Gold Standard 2.0.

As gold regains its position as the top world reserve currency and an important currency of world trade that also backs up the worldwide debt, I can see it going multiples higher from its current price. Especially if it backs up the worldwide debt to a healthy amount. It took around five decades to break the debt and fiat currency system and will take decades to fix it.

In this kind of environment, the gold miners will become the stars of the show when it comes to stocks in every sector. Which is also very bullish for silver and other metals like copper as investors flock to hard assets.

All the best,

Allan Barry Laboucan

P.S. A few days ago I wrote a report focused on my top picks for gold miners, you can find it here.