By using this website you agree to our cookies policy X Login Register English Chinese, Simplified Back to World Gold Council Gold spot price USD 1,789.85 Data Research Portfolio simulator Gold valuation Gold as a strategic asset Goldhub blog Search Home Goldhub Research Library Investment Update: Stagflation rears its ugly head Share this page: Investment Update: Stagflation rears its ugly head 12 October, 2021 Sectors: Investment Download Over the past two months, economic growth has disappointed even as inflation has exceeded expectations. A real risk of stagflationary conditions, with rising costs amid lower growth, appears to be on the cards. Stagflation, if severe, can be damaging to both the economy and financial markets. But we don’t need a repeat of the 1970s for assets to be affected. Our analysis shows that even mild stagflationary conditions can have similar asset impacts to those in more severe stagflations. Stagflation has historically hit equities hard. Fixed income returns have been variable, while both commodities and gold have fared well. Gold’s historically strong performance can be attributed to: higher inflation and market volatility– supporting capital preservation motives. lower real interest rates – supporting both opportunity cost and growth risk motives. But we caution against prescriptively applying historical performance to future expectations. Some additional considerations are: Gold’s strong performance since 2018 could be a headwind, but our analysis shows that it need not be Gold hasn’t benefited from record-low real rates and high inflation in 2021. We believe this has to do with rosy expectations about inflation, growth and equities Record low yields might constrain bonds’ hedging potential in a risk-off event, offering gold an opportunity to command some of those defensive flows, should a shock to risk assets materialise. Data warns of stagflation Following a rampant first half in 2021, economic growth may be rolling over in the US and elsewhere. But inflation remains a lingering, if not growing, concern. Economic data started surprising to the downside in August even as inflation data kept their upside surprises (Chart 1). Chart 1: Negative surprises in growth data during positive surprises in inflation data Global economic and inflation surprise indices Index level Download Global economic surprise index Global inflation surprise index Jan '16 Jul '16 Jan '17 Jul '17 Jan '18 Jul '18 Jan '19 Jul '19 Jan '20 Jul '20 Jan '21 Jul '21 -100 -80 -60 -40 -20 0 20 40 60 80 100 120 Sources: Bloomberg, World Gold Council; Disclaimer Login or register to keep reading... Login or register to read the text, view charts and download the files.. Registration is free, quick and easy. It gives you access to all downloads on this website. Login Register Important disclaimers and disclosures [+] Collections: Gold Demand Trends Gold Investor Market update Market primer Investment case for gold Investment update Market focus Conflict-free gold Market: China Europe India Middle East & Turkey USA Sector: Market insights Supply Gold production Recycling Demand Jewellery Investment Technology Central banks/official inst. Related Publications Previous 28 October, 2021 Gold Demand Trends Q3 2021 21 October, 2021 Investment Update: Gold's role in the changing asset allocation strategy of Australian super funds Next 1 2 3 4 5 Subscribe Receive the latest gold research and data to your inbox. Subscribe Subscribe with social media: Facebook LinkedIn Google Goldhub Data Portfolio simulator About Goldhub Privacy Contact us Sitemap Terms and conditions Follow us: London - Head office World Gold Council - Head Office 7th Floor, 15 Fetter Lane, London EC4A 1BW United Kingdom info@gold.org +44 207 826 4700 New York World Gold Council 685 Third Avenue 27th Floor New York NY 10017 United States of America info@gold.org +1 212 317 3800 Singapore World Gold Council (Singapore) Pte Ltd 10 Collyer Quay Level 37, Ocean Financial Centre Singapore 049315 info@gold.org +65 6808 6749 Mumbai World Gold Council (India) Private Ltd (CIN: U74900MH2011FTC224567) Registered office: B-6/3, 6th floor Laxmi Towers C-25 Bandra Kurla Complex Bandra (East) Mumbai 400051 India info@gold.org +91 22 6157 9100 Shanghai World Gold Council Room 4805 B No. 1717 Nanjing West Road Wheelock Square Jing’an District 200040 Shanghai People's Republic of China info@gold.org +86 21 2226 1188 Beijing World Gold Council Room 1009, 10/F, Beijing Fortune Building, No. 5 North Dongsanhuan Road, Chaoyang District, 100004 Beijing, People’s Republic of China info@gold.org +86 10 8592 5000 ©2021 World Gold Council 沪ICP备16026324号-1 公安备案号31010602004116