Investors are getting pulled in different directions, between the positive trend of economic growth and the threat of rising inflation. Below, I’ll pinpoint an asset class that historically outperforms (and provides a hedge) during these conditions.

Two separate government reports Thursday, when taken together, extended the “good news/bad news” scenario. That said, the stock market rally and economic recovery continue apace.

First, the good news. The Labor Department reported Thursday that initial jobless claims fell to a seasonally adjusted 375,000 in the week ended August 7, from a revised 387,000 in the previous week. It was the third consecutive decline in weekly jobless claims.

Now the not-so-great news. The Labor Department also reported that producer prices in July rose at the fastest annual pace on record. The producer price index (PPI) for final demand increased at a 7.8% rate for the 12 months ended July, surpassing the consensus expectation of 7.3%. The PPI rose 1% in July, matching the increase from June. Analysts were expecting the PPI to grow at a 0.6% pace.

At first, Wall Street reacted badly to the PPI report and stocks slumped in early trading Thursday. But indicative of the tug-of-war dynamic, traders eventually shrugged off the inflation data and stocks reversed direction to close in the green. The Dow Jones Industrial Average rose 14.88 points (+0.04%), the S&P 500 climbed 13.13 points (+0.30%), and the tech-heavy NASDAQ increased 51.13 points (+0.35%).

In pre-market futures contracts Friday, all three U.S. indices were trading in positive territory. The trend of job growth continues to encourage investors. However, falling Treasury note yields are pulling in the other direction. Earlier this month, the T-note yield slipped beneath 1.20%, scraping as low as 1.13%, the lowest since February. Since then, the yield has edged above 1.30%.

Generally speaking, when investors are getting nervous, they flee to the safe haven of bonds, which pushes up their prices and weighs on their yields.

Inflation insurance…

Here’s some context for those PPI numbers: the spike in prices is largely due to supply chain disruptions and shortages caused by the pandemic. These anomalies should soon flatten out. The positive jobs report, meanwhile, underscores the durability of the recovery.

That said, when it comes to inflation, it’s prudent to take out some “portfolio insurance.” I’ve often written about gold as an inflation hedge, but don’t give short shrift to another hard asset: silver.

Industrial demand plays a key role in silver’s bullish story. Both gold and silver are used in several industrial processes and consumer products, but silver is far more prevalent and crucial.

According to the Silver Institute, about 46% of world silver supply is used in industrial applications. Silver is a superb conductor of heat and electricity, making it an integral component in medicine, electronics, automobiles, food processing, solar energy, textiles, and radiography, to cite only a few industries.

The unstoppable momentum of solar energy boosts demand for silver, because the metal is vital for the production of photovoltaic cells. Another advantage for the “white metal” is demand for silver-zinc batteries, which are widely used in missile, space launch, and electric vehicle (EV) applications.

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President Biden signed an executive order last week that sets a target for half of all vehicles sold in the United States to be electric by 2030, up from only 2% last year. The auto industry has agreed to the White House’s target for new EV sales. This political development is a powerful tailwind for silver.

Analysts at the Hard Assets Alliance state: “Part monetary metal like gold, but also an industrial metal whose uses would climb in an infrastructure and clean-energy spending spree proposed by Biden, this dual role could easily push it to advance more than gold.”

Moreover, as inflation rises, your portfolio needs hard assets as a hedge. Gold is a time-proven hedge during inflationary periods, but silver performs even better.

The following table depicts silver’s two biggest runs in modern history:

Source: HardAssetsAlliance.com

The silver price rose over 10 times during the hyperinflation of the late 1970s, and it rose over four times when investors feared the consequences of the Federal Reserve’s aggressive quantitative easing.

Gold and silver are traditional safe havens during times of market anxiety. But when gold prices rise, silver tends to rise even higher. Silver is considerably cheaper per ounce than gold. As gold climbs in price, traders perceive a bigger bang for their buck with silver.

If you’re worried about inflation and stock market volatility, both gold and silver warrant your attention. To learn more about hard asset investing, visit this link.

John Persinos is the editorial director of Investing Daily. Send your questions or comments to mailbag@investingdaily.com. To subscribe to John’s video channel, click here.