Warning: The Financial System is Shifting to the BAD Kind of Inflation
The financial system is now shifting from “good” inflation to “bad” inflation.
As I noted last week, stocks initially LOVE inflation because it allows companies to increase prices, thereby growing sales in nominal terms. Put another way, inflation initially appears as “growth” because it looks as though companies are selling MORE of their goods and services even though the increase is primarily driven by price hikes, NOT actual growth.
However, this only works up to a point. Once inflation crosses a certain threshold, it begins to eat into margins, profits begin to fall, and that’s when things get UGLY.
I bring all of this up because for most of 2025, inflation has benefitted stocks. Indeed, this is a primary reason why the S&P 500 has been in melt-up mode from the April lows. You can see this in the below chart showing the S&P 500 ripping higher as the $USD breaks down to new lows. Put simply, stocks benefitted greatly from a weak $USD.
However, by the look of things, this is now changing.
One of the key methods for tracking inflation is to compare the price action of gold against that of stocks. During periods in which inflation is relatively tame, thereby benefitting stocks, the S&P 500 will outperform gold. However, once inflation starts to become a problem, this dynamic reverses and gold starts to outperform the S&P 500.
This is happening NOW.
Below is a chart showing the performance of gold relative to that of the S&P 500. When this line rises, gold is outperforming the S&P 500. And when the line falls, the S&P 500 is outperforming gold.
As you can see, gold initially ripped higher relative to stocks during the trade war stock market meltdown. However, it’s important to note that this was due to stocks collapsing as well as gold rallying. Put another way, this was NOT indicative of inflation rising, but more about the fact that stocks were doing so badly.
Since that time, however, stocks have outperformed gold signaling that “good” inflation was spreading in the financial system. But, as you can see, this has now ended. Gold just broke out against stocks in a BIG way, signaling that inflation is finally crossing the threshold at which it becomes a MAJOR problem.
Remember, stocks have been rallying relentlessly higher over the last six weeks. As I write this, the S&P 500 is right near its all-time highs. So, the fact that gold is OUTPERFORMING stocks in this environment is a MAJOR “tell” that things are changing in the financial system.
Put another way, the financial system is now shifting from “good” inflation to “bad” inflation. Which means it’s time to move aggressively into major inflation hedges if you want to profit from this!
This is a HUGE deal. It signals that globally the next round of inflation is about to hit!
The time to prepare for this is NOW before it arrives!
On that note, we just published a Special Investment Report concerning FIVE secret investments you can use to make inflation pay you as it rips through the financial system in the months ahead.
The report is titled Survive the Inflationary Storm. And it explains in very simply terms how to make inflation PAY YOU.
We are making just 100 copies available to the public.
To pick up yours, swing by:
Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research