Two reports in the news today suggest that stagflation is on its way.
Stagflation is the economic affliction in which a stagnant economy (often characterized by high unemployment) coincides with rising prices (caused by an increase in inflation).
Stagflation was first identified back in the 1970s and is a terrible condition for stock investors and an ideal circumstance for gold investors. During the worst bout of stagflation in 1974-75, the S&P 500 declined 45% over 21 months, the worst bear market since the Great Depression. During the same period, the price of gold tripled, sending the value of rare gold coins accelerating even more.
Today we see stark signs of stagflation that every investor should prepare for by accumulating physical gold investments.
First of all, drought conditions are creating the conditions for a coming spike in food prices, a key component in the cost of living:
Secondly, the US economy is stuck in the mud, not going anywhere. Today Fed Chairman Ben Bernanke said as much and predicted that the stagnant economy would stay that way. He also offered no hint that the Federal Reserve would take any action to try to stimulate economic activity.
So, there you have it: rising prices combined with an economy stuck in the mud: stagflation.
History tells us that investors need to protect and build their wealth in such circumstances with gold investments.