You don't have AGC in an FM radio, in fact you have the opposite, a
limiter that removes as much of the AM component as possible.

Here's a link that explains squelch well:
http://en.wikipedia.org/wiki/Squelch

Two approaches:
http://www.taha.islam-piers.org/circuits/2M-Circuits/squelch-descrip.htm
http://www.seits.org/repeater/bilevel.htm

FWIW the AC audio output of an FM receiver is at maximum when there is
no signal.

I have had occasion to demonstrate that typical FM signals carry a
fair AM component a time or two.

There was one time when a transmitter PLL became unlocked, and the
transmitter was emitting nicely in the 2M FM band AND on the local ATC
tower frequency.  It was clear audio into their AM recievers.   The
thing is that the stages past the modulator, including the antenna
system, usually add some AM component to the FM transmission since
they have a finite bandwidth.

A suitably narrow tuned circuit can be the foundation of a crystal
radio that will reproduce FM signals.
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