Key Takeaways
- A Federal Reserve official said this week that the central bank cannot overlook repeated and persistent supply shocks, which is a different kind of inflation problem than the one rate hikes are built to solve.
- Rate hikes work by cooling demand. When inflation comes from the supply side, higher rates squeeze the economy without addressing the cause.
- That exact situation produced gold's strongest decade on record. Gold rose from a fixed $35 an ounce to $850 by January 1980, while stocks delivered close to zero real return.
- Central banks have bought roughly 1,000 tonnes of gold a year since 2022 and now hold more of it than they do US Treasuries.
- Gold trades roughly 22 percent below its January record. Metals pay no dividend or interest and their value moves.
There are two kinds of inflation, and they call for opposite responses. Most coverage treats them as the same thing, which is why the distinction is worth ten minutes of your attention.
The first kind comes from demand. Too much money chasing too few goods, an economy running hot, consumers and businesses bidding prices up. A central bank handles this well. Raise the cost of borrowing, cool the spending, and prices settle. That is the job interest rates were designed for.
The second kind comes from supply. A war disrupts energy. A trade barrier raises input costs. A shortage develops in something industry cannot substitute. Prices rise not because anyone is spending too freely but because the goods themselves cost more to produce.
Raising rates does almost nothing about the second kind. It cannot produce more oil or unblock a shipping lane. What it does is make borrowing expensive across an economy already absorbing higher costs.
At USA Capital Gold, a precious metals dealer and IRA facilitator handling tax-free rollovers into physical gold and silver, we think a comment made this week is the most important thing a saver heard all month.
What the Fed Said This Week
On Monday, Chicago Federal Reserve President Austan Goolsbee said the central bank cannot overlook repeated and persistent supply shocks. Separately, St. Louis Federal Reserve President Alberto Musalem said further rate increases may be necessary to bring inflation toward the target. Two more officials, John Williams and Tom Barkin, speak today.
Read the first comment carefully. A sitting Fed official is publicly acknowledging that the inflation the Fed is fighting is coming, at least partly, from the supply side, and that these shocks keep repeating rather than passing.
That comes six days after the Fed raised rates for the first time since July 2023, lifting the target range to 3.75 to 4 percent on a unanimous vote, while projecting core inflation at 3.4 percent by the end of 2026.
So the institution is tightening into an inflation problem that at least one of its own policymakers describes as driven by forces tightening does not reach.
Why This Distinction Matters So Much
CME Group put the mechanism about as plainly as anyone has. Aggressive rate hikes are an effective tool if the cause is simply excessive demand in the system, they note, but when the cause of inflation is an elevated input price like oil, the Fed cannot fix it as easily with rate hikes alone.
Follow that to its conclusion and you get an uncomfortable position for a central bank. If prices are rising because of supply, the available options are to keep tightening and accept the damage to growth, or to stop tightening and accept that inflation stays above target. Neither is good. Economists have a word for the condition that results when both problems arrive together, and the word is stagflation.
The reason this matters for a saver is that stagflation is the one environment in which the standard retirement portfolio has nowhere to hide. Stocks struggle because companies face higher costs and weaker demand. Bonds struggle because inflation erodes a fixed coupon while rising rates cut the market value of what you already hold. Cash struggles because inflation outpaces the interest.
What Gold Did the Last Time
The 1970s are the reference case, and the numbers are not close.
Gold was fixed at roughly $35 an ounce under the Bretton Woods system until August 1971, when the dollar's convertibility to gold ended and the metal was free to trade. By January 21, 1980, it reached $850 an ounce, a nominal gain of more than 2,300 percent across the decade.
CME Group's figures narrow it further. Between 1973 and 1979, inflation averaged roughly 8.8 percent a year, and gold delivered an annual return of about 35 percent. Over that same stretch, the S&P 500 produced close to zero real return.
The cause was exactly what Goolsbee described this week. An oil embargo drove crude prices up sharply, which raised costs across the entire economy. That was a supply shock, not a demand problem, and rate policy could not reach it. Inflation ran above 6 percent for the full decade, peaking above 11 percent in 1974 and above 13 percent by 1980.
Gold did not rise because it was fashionable. It rose because it was one of the few things that could not be diluted while everything else was.
What the Largest Buyers Are Doing
Central banks have not been waiting for this debate to resolve, and their behaviour is more informative than anything said on television.
They have purchased physical gold at roughly 1,000 tonnes a year since 2022, the fastest sustained pace in modern history, absorbing a large share of everything the world's mines produce. In the World Gold Council's 2026 survey, around 89 percent said they expect official reserves to keep rising over the coming year. That accumulation delivered a milestone most savers never heard about: gold has now overtaken US Treasuries as a share of global official reserves.
Think about what that represents. Institutions that exist specifically to hold safe assets examined government debt, weighed it against metal, and chose metal. They buy on long-horizon reserve strategy rather than chasing quotes, which means their accumulation puts a persistent floor under the market rather than a speculative bid.
Wall Street points the same direction on price. JPMorgan has carried a year-end 2026 target near $6,000 an ounce with $6,300 flagged into 2027, Bank of America has pointed toward $6,000 within twelve months, and UBS has landed in the $5,200 to $5,900 range. Measure the most restrained of those against a gold price near $4,330 and the gap is substantial.
That price is the part worth sitting with. Gold trades roughly 22 percent below the record of $5,589.38 it set on January 28, while every one of the forces above strengthened over the same stretch. The structural case improved and the price did not follow, which is the more favourable side of that gap to be standing on.
Silver has already begun closing its own. It sits near $65 and stands roughly 48 percent above where it was a year ago, considerably more ground than gold has covered, which is why most savers who hold metals hold both. Gold anchors the position. Silver supplies the acceleration.
Putting Metals Inside a Retirement Account
Most people assume a retirement account cannot hold physical metal. It can.
A direct rollover from an existing 401(k), traditional IRA, 403(b), or TSP into a self-directed IRA holding physical gold and silver creates no taxable event and no early-withdrawal penalty when an approved custodian handles it correctly. You can move a portion rather than the entire balance, which is what most of our clients do, and the process typically completes in one to three weeks. The metal is held in your name at an insured depository and owned outright.
The Bottom Line
A Federal Reserve official said this week that supply shocks are repeated and persistent. That is an admission about what kind of inflation this is, and it is the kind interest rates were never built to solve.
The last time the United States faced inflation driven by supply rather than demand, gold rose more than 2,300 percent over a decade while stocks delivered close to zero in real terms. That condition is the one a sitting policymaker has now described out loud.
Central banks have spent four years buying at a record pace and now hold more gold than US Treasuries. Every major bank target published this year sits above the current price. And gold trades roughly 22 percent below where it peaked in January.
Metals pay no dividend or interest and their value moves, so they belong as one part of a diversified retirement plan rather than a replacement for it. This is general information, not financial advice, and the right approach depends on your situation.
Frequently Asked Questions
Why can't rate hikes fix supply-driven inflation?
Because raising rates works by reducing demand. It makes borrowing more expensive so households and businesses spend less, which cools prices when the problem is too much spending. When prices are rising because energy or inputs cost more to produce, higher rates do not create additional supply. They restrain the economy without addressing the cause.
What is stagflation?
The combination of stagnant economic growth, high inflation, and high unemployment. It is difficult for policymakers because the usual fixes conflict: raising rates to fight inflation worsens growth and employment, while cutting rates to support growth worsens inflation.
How did gold perform during the 1970s?
Gold was fixed near $35 an ounce until August 1971, then reached $850 by January 1980, a nominal gain of more than 2,300 percent. Between 1973 and 1979, inflation averaged roughly 8.8 percent annually and gold returned about 35 percent a year, while the S&P 500 delivered close to zero real return.
Are we in stagflation now?
Not the full condition, which also requires stagnant growth and high unemployment. What is present is the ingredient that historically mattered most for gold: inflation coming from the supply side, which interest rate policy cannot reach. A Federal Reserve official described exactly that this week, and it is the same force that drove gold's strongest decade on record.
Can I move part of a retirement account into physical metals?
Yes. A direct rollover from a 401(k), traditional IRA, 403(b), or TSP into a self-directed IRA holding physical gold and silver is not a taxable event when handled correctly through an approved custodian. You can convert a portion rather than the whole account, with the metal stored in an insured depository and owned outright. Call 1-888-263-8931.
Related Reading
- The Fed raised rates and gold went up anyway. Here is why the textbook got it backwards
- Why gold and silver deserve a place in your retirement right now
- How high will gold go? A grounded look at gold and silver price forecasts
Take the Next Step
- Download the free gold and silver guide
- Explore a tax-free 401(k)-to-gold rollover
- Add silver to a precious metals IRA
- Open a gold and silver IRA
- Call a USA Capital Gold advisor at 1-888-263-8931
Ready to Protect Your Retirement?
Speak with one of our precious metals specialists today to learn how gold and silver can help secure your financial future.