Soft Economic Growth With Persistent Inflation Equals Stagflation Which Is Extremely Bullish For Gold And Silver
Both gold and silver have gotten off to very good starts in 2025. Of particular note was their bullish action on Friday. The jobs report on Friday came in stronger than estimates, which usually means gold and silver go down on the concerns that the Fed will hike rates which won’t be good for gold and silver as it puts wind behind the sails of the US dollar.
Why they performed well has to do with what I think few are talking about, which is that the potential for significant stagflation is picking up. The last time there was a bout of stagflation in America, it was very bullish for gold and silver. It will be again and that is likely what drove gold and silver higher on Friday.
Although the Fed, Wall Street economists and financial media talking heads aren’t saying much about stagflation, the numbers are pointing in that direction. Even the Fed sees it based on their estimates for economic growth and inflation at their December meeting. They are predicting that economic growth will be significantly below inflation as they admitted their models for inflation coming down have fallen apart.
The economy has been shedding full-time jobs for over a year while part-time jobs and government jobs are up. Those trends don’t suggest a strong jobs market. Especially when considering that the labor participation rate is at 62%.
The jobs market is not strong, neither is the economy. One report like on Friday, which is highly likely to be revised downward, does not change the trends in jobs. The Fed committee sees this and it is why they are only expecting economic growth to be around 2% in 2025, while they forecast inflation to be above 3%. They may not come to the conclusion that they are forecasting stagflation, but that is exactly what their estimates are predicting.
Gold's primary driver in 2024 was the Death Spiral of Debt and devastation of purchasing power of fiat currencies. Seeing silver starting 2025 on stronger footing, like gold, suggests that investors are starting to price in growing stagflation alarms.
Trump’s plans for mass deportations and tariffs are stagflationary.
The dirty little secret that the MAGA crowd and Trump don’t talk about is that all those immigrants are actually good for the economy. They work for lower wages, and this helps companies make money that they wouldn’t make if they had to pay higher wages. It also affects tech companies that rely on foreign workers that have visas as they also work for lower wages.
Mass deportation may get the MAGA crowd and Trump excited, but the end result will be a slowdown in the economy and an increase in inflation. Which is why some investors are starting to position themselves in gold and silver out of concern for stagflation.
Trump’s plans to cut taxes, likely for the top not down the food chain, without cutting spending will only add to the debt problem. Elon Musk is coming to terms with the idea that getting a spending junkie like Trump and the politicians on both sides of the aisle to slash spending won’t be easy.
Even before Trump is in office, Elon Musk has tempered his estimates on slashing spending from $2 trillion down to $1 trillion. He is going to be shocked when instead of reducing the $2 trillion budget deficit it will likely grow to $3 trillion in 2025.
The trends in spending on medicare/medicaid, social security, interest on the debt and defense are more than income from taxes and they are untouchable programs. Everything else the government spends on pushes the deficit up to over $2 trillion.
If Trump goes ahead with mass deportations, tariffs and tax cuts, plus continues his addiction to spending, then $3 trillion plus deficits in his first year and throughout his second term will be the new normal. Plus, it will cause a slowdown in the economy and increase inflation and make stagflation a much more talked about topic.
The fact of the matter is that government statistics on jobs, the economy and inflation are so manipulated that they are useless. I rely much more on voters that came to the polls troubled by the economy and inflation to give Trump a landslide win by ousting the Democrats. I also trust the bond vigilantes that have been on a buyer’s strike and have driven up yields while the Fed declared victory on inflation and lowered rates.
The voters and bond vigilantes are saying that stagflation is here. Likely for all of 2024 and is ramping up of late and concerns are that it will get worse.
Which will give us the final piece of the trifecta of bullish signs for gold and silver. A Death Spiral of Debt, constant purchasing power destruction and stagflation.
There really has never been a better time to be a bull on gold and silver. But, the real torque can be found when looking at how gold and silver are being priced in the ground considering the valuations of the miners, new mine developers and explorers. Gold and silver in the ground are being priced for pennies on the dollar.
Context always matters, even if those in the heat of the market don’t pay much attention to it. Up until around the middle of February, 2024, the gold stocks had been in a bear market for a few years. They were trading at very low bases. But throughout the year, as gold had a powerful year, the best in breed gold miners performed extremely well significantly outperforming the price of gold.
But, the gold bull market didn’t really bring the gold companies with high-quality new mine development projects and explorers with important discoveries to the party. Yes, there were some outliers, but for the most part they didn’t really get off the canvas in a convincing way.
With gold and silver primed to have powerful bull markets in 2025. Based on the trifecta of bullish indicators. The best in breed miners will continue to outperform and the gold and silver bull markets will also make their way down the food chain to the developers and explorers with high-quality projects.
I’m extremely confident that the value of gold and silver in the ground will improve as investors get more bullish on the stocks that have them in the ground.
All the best,
Allan Barry Laboucan
