In a recent interview by Soar Financially, Axel Merk, director of Merk Investments, shared his thoughts on the Federal Reserve, gold, and the mining sector.
The conversation started with a mention of the Federal Reserve and its quantitative easing policy, also known as the "FED Bazooka". Axel Merk commented that there's no leverage in Gold meaning there are no speculators in gold or anything happening. People can talk about manipulation of the gold price, but there is no interest despite gold outperforming the S&P last year.
Axel Merk also pointed out that gold investors think they are special. He disagrees with the manipulation thesis, arguing that every market is manipulated to some extent. This manipulation comes from derivative markets and people with various motivations such as hedging, arbitrage, etc.
While this manipulation can cause distortions compared to a spot market with no leverage, Axel Merk says investors need to grow up and deal with it. He offered a similar perspective on Fed policy, stating that we can complain about it but ultimately we have to deal with it.
One way for investors to prepare for manipulation is to understand what's happening and take appropriate precautions. Axel Merk mentioned the negative oil prices of a few years ago as an example. By reading the small print, investors can be prepared for potential issues.
The conversation then shifted to Canada's political landscape and its impact on the mining sector. Axel Merk acknowledged that a recent change in leadership has created uncertainty. He noted that Canada has become a more difficult place to invest in mining due to factors such as the increasing power of First Nations and dual-layer taxation.
Canada is not the only country with geopolitical risk for mining. Axel Merk mentioned permitting issues in the US as another example. He pointed out that getting things done quickly is sometimes more important and this can lead to looking at countries with questionable geopolitical stability.
Is Now The Time To Increase Exposure To Mining Stocks?
Given the current climate, is now the time to increase exposure to mining stocks? Axel Merk cannot give specific investment advice, but he did mention that he has recently increased his exposure to the mining space.
While acknowledging the higher volatility of the mining sector compared to gold, Axel Merk suggested a focus on development-stage mining companies. These companies offer the potential for capturing value as they move up the value chain and attract larger investors.
Investors in the mining sector need to be prepared for volatility according to Axel Merk. He advised having an investment process in place and sticking to it. He also pointed out that the market is often driven by unforeseen events, so investors need to be prepared to adapt.
Axel Merk sees gold as a hedge against potential disruptions caused by rising populism. He mentioned the recent resignation of the Canadian government and the rise of populism in Europe as examples of such disruptions.
Watch the full interview:
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