Stagflation Scare: Investors Flee to Gold & Bonds as Dollar Teeters on the Brink

Markets are flipping the script—gold’s gleaming again and bonds are back in vogue. The dollar? Not so much.

Hedge or bust

With stagflation whispers turning into shouts, traditional safe havens are stealing the spotlight. Gold’s rallying like it’s 2020 again, while Treasury demand spikes—because nothing says 'panic' like institutional money piling into government debt.

The dollar’s double jeopardy

Currency traders are sweating bullets as inflation and stagnation play a tag-team match against the greenback. Meanwhile, crypto’s lurking on the sidelines—volatile as ever, but looking oddly stable compared to fiat’s midlife crisis.

Bottom line
: When the 'smart money' starts hoarding shiny rocks and IOUs, maybe it’s time to ask why we still pretend the system isn’t rigged. *Cue Bitcoin maxi laughter.*

Global stocks could drop if the U.S. economy slows

Caroline Shaw, a multi-asset manager at Fidelity International, said the firm expects U.S. growth to cool and lists stagflation as one of its two CORE scenarios. She remains positive on large U.S. technology names but in mid-July bought put options designed to profit if the more cyclical Russell 2000 small-cap index (RUT) falls.

Equities elsewhere WOULD likely weaken even if stagflation were confined to the U.S. Since 1990, world stocks (.MIWD00000PUS) have declined by an average of 15% when U.S. manufacturing reports showed both contraction and higher-than-average prices, said Michael Metcalfe, State Street’s head of macro strategy.

For now, shares keep rising. Metcalfe says investors think “the disruption to the global trading system isn’t going to disrupt big tech earnings.” Man Group chief market strategist Kristina Hooper said markets are leaning toward the positive and downplaying weaker signals.

“It’s like parenting, you only want to see the best in your children, and we’re at a stage where it’s possible for markets to do that,” she said, describing the current mood.

Nabil Milali, multi-asset and overlay portfolio manager at Edmond de Rothschild Asset Management, said the data point to stagflation in the U.S., and he expects more dollar weakness versus the euro.

Investors turn to gold, bonds as dollar faces double stagflation risks

Stagflation creates two problems for the U.S. dollar. Slower growth can weaken a currency, and high inflation reduces how much it can buy in other countries. This year, the euro has gained over 12% against the dollar. The yen and British pound have also gotten stronger.

Stagflation could offer one more reason to add gold, already a common refuge for investors, said Man Group’s Hooper. Other inflation shields may appeal too, such as short-dated inflation-linked bonds, said Foresight Group’s Markanday.

Eitelman said many professionals are using tools such as inflation swaps, contracts that gain value when price indexes surpass a set level. The U.S. two-year inflation-linked swap is close to its highest point in more than two years.

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