The red-hot inflation devouring our purchasing power since mid-2021 has declined a bit from its worst – a bit. Spikes in energy prices have moderated. Which is great news by itself! It’s not the only news, however…

The latest producer price index (PPI) update from the Bureau of Labor Statistics showed that producer prices, across the board, are still running hot at 8.8%. Producer prices are upstream of the consumer level measurements of inflation (CPI). When manufacturers have to pay more for raw materials, obviously they have to charge more for finished products. That makes PPI a leading indicator of higher prices.

So a higher PPI means the prices we see on store shelves for nearly everything, from canned soup to Cadillacs, are on their way up.

There’s no imminent relief for retired Americans who are on a fixed income, now or in the near future.

Because inflation is high, the Federal Reserve has finally raised interest rates in a belated attempt to return the U.S. economy to monetary sanity. Trillions of stimulus dollars inflated asset prices from stocks and bonds to housing. In order to clean up its mess, the Fed has taken a firm stand against inflated asset prices. (When I discussed this a couple weeks back, I described it as The Fed Declares War on Wall Street.)

Higher interest rates suppress economic activity. Lower economic activity means fewer jobs, which lowers demand for consumer products, which lowers economic activity further…

You get the picture.

The Fed’s war on Wall Street is going well. As of October 12th: The Dow had shed more than 19%, the S&P 500 lost more than 24%, the NASDAQ was down 33%, and the Russell 2000 was in the red by 24%.

The bond market is down 16.5% so far this year, resulting in what the Wall Street Journal called “the worst bond market since 1842.”

Throw two successive quarters of negative GDP on top of the pile (-1.6% and -0.6% respectively), and you have what most reasonable people would call a recession.

Chairman Powell promised us pain. He’s delivering.

To sum up, the economic situation is already bleak with a 100% chance of further gloominess. The International Monetary Fund (IMF) ominously announced that the “worst is yet to come” just Tuesday!

Have you had enough bad news yet?

I know I have.

Here’s the thing, though: we can’t just sit this one out.

Whether you’re saving for retirement or already retired, it’s up to you to make smart moves with your savings right now. The problem is, none of the common asset classes looks particularly attractive right now.

So what can we do to help level the playing field?

One answer: consider diversifying your savings with assets that are resilient.

This resilient asset holds steady during economic turmoil

According to the World Gold Council, in spite of enormous pressure on multiple fronts, physical gold has demonstrated resilience. What does that mean, exactly? Here’s their explanation:

Gold dropped 2.6% in September on the back of the twin headwinds of a surging US dollar and higher bond yields. Gold remained resilient despite these challenges alongside pressure from futures net shorts and ETF outflows.

Looking ahead: The US dollar surge has been a major headwind for many assets in 2022 and we believe its trajectory for the rest of the year will be a key determinant of gold’s fortunes. But the dollar is now facing its own challenges. Rising interest rates, typically another obstacle for gold, appear to be less important to investors now than they were in H1.

As I've explained before, temporary surges in dollar value affect the dollar-denominated price of gold. But the WGC offered three key reasons the dollar will be facing challenges in the near future, which could relieve the price pressure on gold:

1. A historically high valuation and positioning in the US dollar relative to DXY [dollar index] components.
2. Central bank intervention in FX [foreign exchange] markets and/or bond markets
3. Better aligned bond market expectations.

We should note that, despite economic headwinds, gold’s price since January has remained relatively stable compared to the major stock and bond market indices.

But how does gold perform during inflation?

Even though gold has seen price fluctuations since the gold standard was removed in the 1970s, the price has consistently moved higher after periods of consolidation. That’s exactly the behavior you’d expect when dollars, the unit of currency we use to price gold, are constantly increasing in quantity – the more dollars there are, the more of them it takes to buy a single ounce of gold.

We did a deep dive into the last few decades, breaking down performance during different market conditions in our Gold as an Investment Over Time article.

We also provided a few examples of exactly how physical gold acted as a safe haven during both inflationary periods and economic recessions. So even if it’s not time to retire yet, it’s always a good idea to make sure your savings are well-diversified with assets that will keep your financial future secure regardless of market conditions. Diversifying with physical precious metals can help keep your future plans resilient no matter what happens next.
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Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver. Based in the Los Angeles area, the company has been in business since 2003. It has an A+ Rating with the BBB and hundreds of satisfied customer reviews.