Gold (XAUUSD) and Silver Rally Ahead of Critical Fed Decision Amid Stagflation Fears

Markets are sending mixed signals ahead of the Fed’s rate decision. Stocks are hitting record highs, yet gold (XAU) and silver (XAG) are also surging. Investors typically turn to precious metals when they fear risk, not when they feel confident about growth. Their rally suggests concern about more than just inflation, possibly stagflation.

At the same time, rising debt, weakening sentiment, and structural cracks in the economy are fuelling demand for safe-haven assets. As the Fed prepares to act, markets remain on edge, watching closely for signs of control or collapse.

Gold and Silver Surge Signals Deeper Economic Trouble

The spot gold price touched $4,380 per ounce, while spot silver reached $54.48 in October 2025. Gold is up over 55%, and silver has surged over 65% year to date. These extraordinary gains signal underlying problems in the economy.

The M2 money supply expanded significantly during the pandemic. This devalued the dollar and pushed investors toward finite assets like gold and silver. At the same time, rising U.S. debt and repeated threats of government shutdowns have eroded confidence in the fiscal system.

The chart below shows a sharp increase in U.S. debt during July, August, and September 2025, with the national debt surging to $37.6 trillion.

As a result, investors are seeking safety in gold and silver as traditional safe havens. However, the scale and timing of this shift suggest something more serious. It indicates growing fears of stagflation, which may now be the Federal Reserve’s biggest concern.

Market Indicators Highlight Structural Risk and Investor Fear

The S&P 500-to-gold ratio reveals a long-term structural shift, as illustrated in the chart below. Historically, gold prices tend to peak when the ratio bottoms, and conversely, gold prices tend to bottom when the ratio reaches a top.

The current pattern shows a rounded top, with the ratio approaching a critical pivot at 1.70. A break below this level could trigger a strong surge in the gold market. This chart highlights a decoupling of risk sentiment, suggesting that rising gold prices are not merely a hedge against inflation but also reflect deeper fears in equity markets.

Since the ratio has formed a rounding top pattern and is attempting to break down, it indicates that the recent surge in gold prices is not a bubble but part of a long-term bullish trend. This suggests that the gold market may continue to trend higher in the coming years.

The chart below shows that perceptions of current economic conditions have dropped to 58.6, the lowest level in more than three years. The index is now approaching levels last seen during the crises of 2008 and 2022. Since the reading is below 100, it reflects a risk-off environment.

However, to confirm this sentiment, the Chicago Fed National Financial Conditions Index must also reflect tightening. Currently, the index stands at 0.55171, indicating that financial conditions remain loose despite the sharp decline in sentiment.

This suggests that despite the sharp drop in sentiment, liquidity, and credit markets have not yet tightened. In other words, broader financial stress has not yet emerged. To fully confirm a risk-off environment, the Nasional Financial Condition Index would need to rise above zero.

Stagflation Fears Return as the Fed Faces No Good Options

Stagflation is a toxic mix of rising inflation, weak growth, and higher unemployment. It gives the Fed no good choices. If the Fed cuts interest rates, it risks worsening inflation. However, if the Fed raises rates, it could choke growth and hurt jobs. That’s why markets fear it.

Gold and silver are reacting accordingly. These metals act as a hedge when central banks lose control. Investors know that if stagflation sets in, traditional policy tools won’t work. The economic conditions indicate that stagflation is already emerging.

Inflation Is Rising Again

The chart below shows that inflation was declining after peaking at 9.1% in 2022. However, it has started to reverse since April 2025. The Consumer Price Index has risen from 2.3% to 3% as of September 2025. While the increase appears small, it is driven by structural changes. Trump-era tariffs on production inputs are driving up costs. Prices are rising across more sectors, making inflation broader and stickier.

The Labour Market Is Losing Momentum

The chart below shows that the U.S. unemployment rate stands at 4.3%, which is historically low but also the highest level in four years. However, the headline job gains are misleading. Revised figures tell a different story. May was revised to a gain of 19,000 jobs, June to a loss of 13,000, and July to an increase of 79,000.

Growth Looks Strong — But Fragile

The chart below shows that Q2 2025 GDP grew by 3.8%, a strong rebound from the -0.6% contraction in Q1 2025. However, this recovery may be temporary. The sharp rise in gold and silver prices, along with increased market hedging, suggests that investors don’t fully trust this growth.

Powell’s Dilemma: Inflation, Growth, or Stability?

The Federal Reserve faces a tricky balancing act. Markets want clear direction, but Powell has few good options. Cutting interest rates could worsen inflation, while raising them might hurt growth. Keeping rates unchanged may help temporarily, but it won’t address the underlying problems.

Therefore, the Fed’s decision on Wednesday will be critical and could have a significant impact on financial markets. Gold and silver prices have pulled back from record highs and are currently testing key support levels. The Fed’s announcement will likely determine its next move.

According to the CME FedWatch tool, markets are pricing in a 98.3% probability that the Fed will cut interest rates to a target range of 375–400 basis points, down from the current 400–425 bps. However, only 1.7% expect no change, and 0% expect a hike. This overwhelming expectation of a rate cut reflects the market’s concern over weakening economic data and rising stagflation risk. If the Fed surprises by holding or hiking, it could trigger sharp volatility across equities, metals, and bonds.

Gold Price Structure Remains Bullish Despite Short-Term Pullback

The technical price structure of the gold market remains strongly bullish. Gold formed an inverted head-and-shoulders pattern in 2015. It then broke decisively above the $2,075 level in 2023, which had served as a pivotal resistance level. Since that breakout, the market has not posted a single negative quarterly close. Prices have continued to surge, reaching new all-time highs each quarter.

However, Q4 2024 encountered strong resistance. The gold price is now correcting from its recent surge, as it did in 2024. Therefore, any correction in October/November 2025 may be considered as a strong buying opportunity for the next move higher. The underlying economic stresses remain unresolved, and the broader market environment continues to favour safe-haven assets.

Silver’s Long-Term Structure Signals Major Upside Ahead

The long-term outlook for silver shows that the metal has formed a cup-and-handle pattern from February 2013 to July 2024 and has broken out above the $30 level. This breakout has triggered a strong rally, pushing prices toward the all-time highs near $50, which silver is currently attempting to break.

A confirmed breakout above $50 would likely open the path toward $60, and a further breakout beyond $60 could trigger a powerful surge toward $100 and beyond.

The formation of multiple bullish technical patterns since the early 20th century suggests that silver is trading significantly below its historical potential, especially when compared to gold. This underperformance suggests a breakout above $50 could mark a significant turning point in the silver market due to a broader precious metals bull market.

Historically, silver has shown the capacity to outperform gold during explosive bull runs, as seen during institutional accumulation phases in the 1980s. The current technical structure echoes those periods and suggests silver may be poised for a similar long-term move.

Bottom Line

The Federal Reserve now faces its most challenging test in decades. Inflation is rising, growth remains uncertain, and the labour market is showing signs of strain. Meanwhile, gold, silver, and stocks are all climbing, sending conflicting signals. This unusual setup reflects elevated market uncertainty and possible structural imbalances. Investors are turning to hard assets as a precaution against broader economic risks. A misstep in policy this Wednesday could reinforce concerns about stagflation.

Gold and silver remain the key indicators to watch. Both metals are consolidating above the $4,000 and $48 after parabolic gains. A breakout or breakdown from here will likely depend on the Fed’s next move. The recent correction in gold and silver from $4,380 and $54.48, respectively, is mainly due to profit-taking. This pullback appears healthy, and a breakout above these levels could trigger another strong upward surge.

From the previous discussion, the gold market is showing a correction similar to that of October 1979, when prices fell from $444.50 to $365 before surging higher to reach $873 in January 1980. The ongoing economic crisis and unresolved geopolitical conditions indicate that the correction in gold is temporary, and the next move in gold and silver is likely to be to the upside.