Stagflation is coming - historically the optimal environment for gold and silver
The world is facing a perfect storm of economic pressures — one that, taken together, points toward stagflation: the most challenging economic environment for most asset classes, and historically the best for gold and silver.
Three key supply chains are breaking at once
The ongoing conflict in the Middle East is doing far more than disrupting oil markets. It is simultaneously threatening the supply chains behind semiconductors and food — two pillars of the modern economy.
Consider semiconductors first. The vast majority of the world's advanced chips — the kind that power Nvidia's AI processors — are produced in Taiwan. That production depends critically on helium gas, and Taiwan sources most of its helium from Qatar's Ras Laffan facility, which accounts for roughly 35% of global supply. Iranian strikes have already damaged Ras Laffan, and Qatari authorities have stated repairs could take years. Taiwan has no clear alternative and will have to compete for whatever limited supplies remain with South Korea and other Asian nations. Higher technology prices are a near certainty.
Food is equally at risk. The Gulf states are the world's largest exporters of fertilizers and oil-derived agricultural chemicals — roughly a third of globally traded fertilizer passes through the Gulf. A prolonged disruption will flow directly into reduced crop yields and higher food prices worldwide. China's announcement on mid-March of fertilizer export restrictions adds further pressure, effectively removing another major source from global markets.
Sweeping tariffs and trade restrictions between major economies are compounding all of the above, raising the cost of imported goods across the board. The pattern is clear: prices are rising not because the economy is thriving, but because the supply of goods is being constrained. That is the classic definition of stagflation — high inflation combined with low or stagnant growth.
What history tells us
During the last great stagflationary period, from 1970 to 1981, gold appreciated at an average of 26% per year — its strongest sustained performance on record. The reason is straightforward: bonds, equities, and real estate all struggle in stagflation. Companies face rising costs and falling demand, pushing toward bankruptcy. Real estate withers as financing costs rise and buyer affluence falls. Bonds fail to generate real returns as inflation surges. Central banks are forced to raise interest rates sharply to prevent currencies from spiralling — and there are no good options, only less bad ones.
In this environment, physical precious metals shine. They carry no counterparty risk, no jurisdictional vulnerability, and no dependency on the health of the financial system. Beyond performing well during the crisis itself, physical metals preserve liquidity when the storm passes and better investment opportunities emerge.
A note on short-term gold and silver price movements
The points above reflect fundamental, structural realities that will shape precious metals prices over the long term. They say nothing about what prices might do next week. In the short term, expect contradictory movements and confusing headlines. Two things are worth keeping in mind:
- Spot prices are predominantly set by paper traders, who may be forced to sell to cover losses elsewhere in falling markets.
- Physical metal availability is driven by a different force entirely: market participants who choose to take delivery and hold real metal rather than paper claims.
As the market runs short of physical "free float" — as briefly occurred in October 2025 — the ability of paper traders to suppress prices becomes increasingly constrained. When exchanges cannot meet physical demand, prices must rally to reflect physical reality rather than paper positioning.
Secure physical metals for the long term
We are now vaulting over 600 tons of silver for our clients at The Reserve — more than 2% of global silver supply, exceeding the silver inventories of the Shanghai Gold Exchange. With silver spot prices roughly 45% below their earlier peak and physical supply tightening, this may be a timely moment to consider adding to your holdings.
View This is When Gold and Silver Do Well for an analysis of how gold and silver perform in different economic macro-environments.
Sincerely,
Gregor J. Gregersen