Gold and Energy as Tailwind Assets in a Stagflationary Outlook

In the shadow of a "stagflation-lite" scenario, where growth slows and inflation clings stubbornly to the upper end of central bank tolerances, investors are recalibrating their portfolios to navigate a world of macroeconomic and political uncertainty. The U.S. economy, projected to grow at 1.6% in 2025 while core inflation remains at 2.9% [1], has become a proving ground for assets that can withstand the dual pressures of weak demand and rising costs. Gold and energy sectors, long seen as cyclical plays, are now emerging as strategic allocations in a stagflationary environment.

Gold: A Timeless Hedge in a Fractured World

Gold’s resurgence is not merely a function of inflation but a reflection of deeper structural shifts. Central banks, particularly in emerging markets, have added 244 tonnes of gold in Q1 2025 alone, signaling a deliberate diversification away from the U.S. dollar amid geopolitical tensions and currency devaluation risks [2]. This trend, accelerated by China and India’s efforts to reduce dollar dependency, has tightened the supply of freely tradable gold, creating a tailwind for prices. By August 2025, gold had surged past $3,440 per ounce, with Citi raising its 3-month target to $3,500 [1].

Historically, gold thrives in stagflationary conditions. During the 1970s, it soared 2,300% as real interest rates turned deeply negative [2]. Today, the Federal Reserve’s cautious pivot—hinting at rate cuts amid a weakening labor market—has reduced the opportunity cost of holding gold, which has no yield but offers protection against currency erosion. Technical indicators, however, suggest caution: a 14-day RSI of 78.4 and resistance at $3,250 signal overbought conditions [4]. Yet, long-term fundamentals—declining ore grades and geopolitical instability—remain robust. For investors, a staggered entry into gold ETFs or physical bullion, paired with allocations to inflation-linked Treasuries or Bitcoin, offers a balanced approach [4].

Energy: The Inflationary Engine’s Fuel

While gold serves as a safe haven, energy sectors act as a direct hedge against the inflationary forces driving stagflation. Rising tariffs, trade wars, and geopolitical tensions in the Middle East have disrupted supply chains, pushing energy prices higher. By Q3 2025, oil and gas companies are benefiting from policy-driven demand, particularly in critical minerals essential for green energy transitions [1]. Infrastructure investments, including energy assets like toll roads and power facilities, are also gaining traction due to their inflation-adjusted revenue models and stable cash flows [3].

Energy’s resilience is rooted in its dual role as both a commodity and an essential service. During the 1970s, energy stocks outperformed as oil prices surged, a pattern repeating itself in 2025 as trade disruptions and OPEC+ production cuts amplify volatility. For institutional investors, energy infrastructure offers a unique blend of inflation protection and operational continuity, making it a cornerstone of stagflation-resistant portfolios [3].

Strategic Allocation in a Fragmented World

The interplay between gold and energy underscores the need for a diversified, sector-specific approach. While gold’s appeal lies in its role as a currency hedge, energy’s value stems from its direct correlation with inflationary pressures. A strategic allocation of 5–10% to gold, alongside 10–15% in energy and infrastructure, could provide a balanced defense against stagflation [2]. For risk-tolerant investors, complementary metals like silver and uranium—driven by industrial demand and energy transition needs—offer additional upside [4].

However, the path forward is not without risks. Overbought conditions in gold and regulatory headwinds in energy sectors could temper gains. Yet, in a world where political uncertainty and trade wars dominate, the case for these assets remains compelling. As one asset manager aptly put it: “In stagflation, you don’t chase growth—you chase survival.”

Source:
[1] Rising Stagflation Risks and Their Impact on Asset Allocation, [https://www.ainvest.com/news/rising-stagflation-risks-impact-asset-allocation-2509/]
[2] Gold's Resurgence: A Barometer for Global Uncertainty in ..., [https://www.ainvest.com/news/gold-resurgence-barometer-global-uncertainty-fed-pivoting-world-2508/]
[3] Why Infrastructure Investing May Outperform During Stagflation, [https://www.forbes.com/sites/garthfriesen/2025/04/18/why-infrastructure-investing-may-outperform-during-stagflation/]
[4] Strategic Metal Investments: Gold, Silver & Uranium in an Uncertain Global Economy, [https://www.cruxinvestor.com/posts/strategic-metal-investments-gold-silver-uranium-in-an-uncertain-global-economy]