Gold Is Exploding, BUT The Fed Could Kill The Rally | Axel Merk
Summary
Precious Metals: Gold surged on the Iran MOU headlines, with discussion centering on its linkage to real rates and inflation expectations, while silver underperformed and miners’ energy costs remain a key input.
Oil Markets: The guest frames the Iran conflict as a supply shock now easing, highlights a softer forward curve, and notes Europe’s increased buying of U.S. oil and broader efforts to reduce reliance on the Strait of Hormuz.
Fed Policy: With Kevin Warsh expected to emphasize rules-based policy and credibility on inflation, a major immediate rate move is unlikely, shifting focus to communication reforms and the long bond.
AI and Data Centers: The AI boom is driving growth and equity issuance, but faces power grid constraints, rising electricity costs, local opposition to large sites, and potential requirements to self-generate energy.
Market Microstructure: Physical gold ETFs typically show ultra-tight spreads that widen around FOMC releases due to hedging difficulty and algorithmic trading, then normalize as volatility subsides.
Inflation and Politics: Wage pressures are muted yet inflation remains above target, with potential political backlash and populist shifts posing medium-term stability risks.
Key Companies: NVIDIA was cited for a $20B equity raise amid the AI boom, illustrating preference for equity over debt financing to mitigate systemic risk during potential downturns.
Near-Term Drivers: The gold-oil correlation remains elevated; a future decoupling would mark a new phase for precious metals pricing dynamics.
Transcript
Gold is ultimately competing with the real value of money in the long run. >> There is a reason why the market thinks this is a shock. There will be a path forward. Reason why people will disagree of how substantial this current agreement is, but the markets are moving back to normal and the the the obviously the the the important part to look is the forward curve in oil markets. We're not back to where we were 6 months ago, but this is one of the lowest levels as far as pricing going forward is concerned. >> Gold is having an absolute day today. It is Monday, June 15th as we're recording this at 6:00 p.m. Central European Summertime, but uh gold is reacting very positively to the peace deal announced or the MOU announced between the US and Iran. Of course, oil is plummeting. Silver is also having a day, but honestly, I'm a bit disappointed in only in a measly 4.4%. Of course, I'm trying to be funny here, but given the volatility in gold and silver and silver in particular, it's almost seems like an underperformance. We'll have to discuss We'll have to address this. Like what what does that mean for gold and silver? Is the downtrend stopped? Are we moving higher? Are we going to see new all-time highs? Of course, I'm being facetious here a little bit, but I'm curious, what does this deal mean for the precious metals? And we'll have to discuss Since it is Fed week, we'll have to discuss inflation, but also the new Fed chair, Kevin Warsh. What is he going to say on Wednesday? How long is that press conference going to be? I'm curious. I haven't checked Polymarket or Kalshi, but curious what the over and under is for the press conference and how long it will be. So, lots to discuss with my guest, Axel Merk. He's the founder, he's the president, he's the man behind Merk Investments. Really excited to have him back on the program. Before I switch over, quick reminder, help us out with the algorithm. Hit that like and subscribe button. Leave a comment down below. We tremendously appreciate that. Now, Axel, it is a great pleasure to welcome you back on the program. It's good to see you again. >> It's good to see you and I know that you're not just giving the date we're speaking but the time of day. That's what we have come to, right? Who knows what the markets are going to do in 5 minutes? >> Yeah, it's like I've been reading the comments and people complain about not giving dates although it's usually in the description but since people seem to be trading off these interviews not financial advice and people shouldn't be doing that. They always ask for oh, when was this recorded? So, you know, trying to be a bit funny but also timestamp it cuz things are moving quite quickly today and we have lots to discuss actually. >> Just just just on this trading off news. So, I would severely discourage anyone doing that. I of course have opinions, lots of them. But I don't have a crystal ball. I presume none of the other guests. So, the value I think that I can contribute and presumably other guests is we can get you thinking about scenarios. I can get you out of your comfort zone and what that hopefully does is that to the extent that you have an investment process, you can cross-check what you hear against what I have to say. But please don't buy or sell based on anything that I say. >> 100% and that's why we try to bring diverse guests onto this channel as well cuz you might not always agree with the opinions of our guests. So, um >> I can disagree with myself for that for that matter. I can if if needed. Yeah. [laughter] >> Perfect. Perfect. Well, we'll figure that out together here actually during the conversation but why don't we start with gold and silver today? Gold in particular is having a great day over 3% for the precious metal it is a big move. Um let's set the scene here a little bit actually. It seems like in investors are running back to to gold. What why is that? Why is it reacting now so positively to the headlines from just last night? >> So, the way I have framed the Iran war in the context of precious metals is that ever since the onset of the Iran war of course volatility spiked that took down some leverage of some speculators but beyond that I've been arguing that the markets are pricing this in as a shock rather than structural change, which means that there are some micro aspects in the market that are quite relevant. Notably, whenever the fear about the war has flared up, bonds were selling off. Um the 30-year bond, as we're talking, is uh below 5%. We are currently at 4.96%. Um it was about, I don't have it in front of me, but at 520 or so. Um gold is ultimately competing um with the real value of money in the long run. And one thing in the long run that hasn't changed is inflation expectations. Now, some people will tell me that nobody has a clue what inflation expectations will be and what inflation will be in 10 years, but there are market metrics for that. And so, the market metrics suggested tighter financial conditions in the long run. And that is why the price of gold had been so sensitive. This happens to be highly correlated with risk assets, with the S&P 500. Um now, some people will say, "Hey, last year that correlation broke down entirely, so why bother now?" Well, anybody who's followed gold knows that correlations of gold versus anything are not particularly stable. Um but for the time being, it's all about Iran. People have been glued on it, and now that there is some relief that's been confirmed by Iran, um the market is taking it seriously. Obviously, Israel has said, "Hey, maybe maybe we don't like this so much." So, who knows what's going to happen next. But But the other thing to keep in mind is in the long run, um there will be a solution that the market comes up with. And so, everything else is details. Um take a scenario that does not seem to be materialize in that Iran would charge a fee at all. Well, that's one to two bucks a barrel and presumably absorbed locally. So, there will be a path forward as long as oil is flowing in one way or another. And even if it weren't to flow, um people will think of alternatives, um build more of solar panels or or nuclear power. And then I'm saying that um only because there is a reason why the market thinks this is a supply shock. There will be a path forward. Um reasonable people will disagree of how substantial this current agreement is, but the markets are moving back to normal and the the the obviously the the important market to look at is the forward curve in oil markets. We're not back to where we were 6 months ago, but this is one of the lowest levels um as far as pricing going forward is concerned. Obviously, things are not back to normal normal anytime soon, but this is a huge relief and the important question going forward is when are we going to kind of disconnect the disentangle ourselves from this this very tight relationship that's that's linked to Iran because everybody is somewhat tired of it and wants to move on. >> Yeah, yet we yet the market is reacting very aggressively to the headlines, right? Uh we we've had how many false starts to a peace deal? Um I stopped counting, but the market still reacts to it, right? Um so, the question is like when do we zoom out? Like when does it not become material anymore? And you you've you've touched on oil, which is really interesting topic cuz it seems to be there is enough oil out there. Uh it was never a big issue. I think even Javier Blas from from Bloomberg mentioned that like we we're expecting a gluttony of oil now hitting the markets, which is not good for prices. So, what what should we be paying attention to? Like the the market seems to be confused in my opinion. Like what is noise? What is signal here, Axel? >> Well, if you're not confused, you're not paying attention. And uh people will disagree on the specifics. How much oil is made come out? Why did the Chinese not use as much oil as they had? There's lots and lots of questions. And uh part of the reason there's this confusion is none of us are experts in oil. Um and a few of us knew what would happen um why oil prices were negative. I happen to think I know a thing about two about precious metals and the the micro dynamics in that market when there were fears of tolls and how how the clearing works in London. But I I have a view on oil. I monitor oil, but we really don't know the details. Now, the good news about the internet is you suddenly have all these experts and we're trying to discern which ones are are relevant, which ones are not. And so, I think what we can do is we can look at it from a very high-level perspective. And uh one of the things, by the way, that's been happening is Europe has been buying more oil from the US. And And so, there's been And of course, it it changes the mindset in the rest of the world. Do they want to be as dependent on the Strait of Hormuz? Are they creating other things? So, there will be medium and long-term things. But one of the beauties about gold is it's so darn simple, right? It's just this barbaric relic. It's just a brick. Whereas, the moment you go to silver or God forbid oil, it is so darn complicated that nobody knows exactly what will happen when. Um And And so, in the miners, we of course need energy, right? Some people are saying that oh, it's only about 10 15% of of production cost is mining. But if you kind of do it all inclusive of everything else that that comes with it, you you end up being at 20 25% because all the goods that that that you use, all the machinery, all that there is energy cost comes comes into everything. And so, trying to disentangle that. And the other side of it is the the ingenuity of of CEOs, of management to find alternatives, right? There is always a different path. How can you when you have a shortage? Well, how do you get things working anyway? Um and so we got to make sure we don't get too much drawn into it. At the same time, we have to respect that the correlation to the price of oil and gold is currently very high. And what I'm looking for right now is is that correlation going to break down? Once that correlation breaks down, then we are in a new phase. I'm looking forward to it, but just because I want something to happen, of course, doesn't mean it will happen. >> Well, the question is like how transitory is inflation? Right? >> Ah. >> Apologies. Right? Transitory, that famous T word. >> Yes, that's a I mean, the >> [sighs] >> the wage pressures haven't been there. Let's put it this way. That's a very important aspect. If wage pressures were there, um and that's by the way both in the US, but also in Europe, the ECB just had a meeting where they said wage pressure is simply not there. Um that's a huge relief to central bankers. Now, of course, we've had all these shocks. Kevin Warsh, who we talked about more, has been long a critic of the Fed, is saying they've come up with a whole bunch of excuses. The fact is inflation is over 2%. That's a problem, and it's the Fed's problem. You can't blame geopolitics. You have to blame the Fed for these things. Right? Um now, it's easier to criticize than to actually run the shop and then and and do things differently. Um but the I think inflation in the short term is mostly a political problem. Um people are struggling on the lower end of the income spectrum, right? If you're at the upper end of the K-shaped economy, um hey, you're you're taking advantage of the positive aspect aspects of inflation, higher stock prices. And ending on the day, the day as we're talking stock prices are higher, right? Um so if the cost of beef is higher, it's not the end of the world, but at the lower end of that spectrum, um the the cost of a homeowner's insurance or rental insurance, of cars, of everything, uh car insurance is is is just very high. Now the folks, the call them cynics, um they had said, "Well, the folks who are at the bottom end of the income spectrum weren't about to take out a mortgage to buy a home anyway." So, who cares? And I'm not trying to belittle the plight of anybody at the lower end of that that K-shaped curve, but the the point is that the stock market, the precious metals market might not be all that sensitive to what happens down there. And so, I think my own conclusion from from those things is that it matters a lot um when it comes to voting. Um people who are upset will vote for more populist politicians, not just on the right, also on the left, and that can lead to less stability. So it does matter. It doesn't matter necessarily to the stock market today or tomorrow, but it does matter to to kind of the fabric of society, which has huge implications for for for growth. And just throw out there, right? The the wealth tax that's been proposed in California being just an example of that. >> Where where are you moving to, Axel? You you just said like you're >> [laughter] >> I'm for for those who don't know, I I have lived in California for 25 years. >> [clears throat] >> And uh yes, if that wealth tax is introduced, I'm seriously contemplating to to leave. Good reason and I know I'm not a billionaire, just to make that clear, but it just goes against just about everything that I believe in, just out of principle, that expropriating a few people is just not the right path forward for any issues. And uh there are many other things that are wrong with with that entire setup. Um and I I raised uh four children here, and so that's kind of what got me got me tied down here, but um there's there's a limit to the pain threshold that I have. >> [laughter] >> Well, I I can imagine. So, fortunately I'm not in your shoes, but I can I can imagine. Um before we talk about the Fed and how the Fed should handle inflation at its meeting this week, your actual just just on the transitory topic again. Oil is coming down dramatically. It's it's come down over the I think it's 11 12% over the last few days in in particular, and it seems like it wants to go lower just looking at the charts. Again, not a chart technician here, but it looks like it wants to go much lower. And as I mentioned, there's a glut in the US well. So, inflation should be coming down. The question though is is that intentional? Meaning uh I'm trying to get a little political here with you, Axel, just for for a moment cuz we have midterm elections coming up in the US, and a lot of concessions were made seemingly getting this MOU across the line here. Do you Do you think politics played any role meaning midterm elections trying to get that K-shaped uh the bottom of the K um you know, more more more happy here trying to improve ratings? >> Well, those who don't like Trump will find lots of things wrong in this. Um and those who like him, there's there's people will scratch their head. I think a key reason why we haven't seen all the details is to give less substance to to the criticism because if you don't know what's going to happen, you're not going to criticize as much. The way I would look at it, and sorry for punting the political question a little bit, is if you take the water under the bridge philosophy, right? You're in a war, you have this conflict, you can argue was it good or bad to go in, but you are where we are, and so now we are appear to be wrapping up the current phase, moving to a new phase. Who knows how stable that's going to be? Who knows whether they're going to be rockets fired and whatnot, but the market reacts to that as as a relief, right? And and rightfully so. Um does that mean Iran is going to give up its nuclear program? I don't know. I mean, they need an enemy and they're not going to give up they're not going to be friends with the US. Um it's their their entire existence is about having the US as an enemy. So, dealing with that is not easy and Israel is of course in a very tough spot because they don't want Iran to get stronger again and I I hear very large amounts of money being offered here for reconstruction in return for for um for concessions. So, I'm not surprised Israel is scratching its head. The Middle East is a mess, has always been a mess. I'm trying to keep on the mind as an analyst rather than to crucify one or the other. Um but you you mentioned the midterm elections. Historically anyway, foreign policy does not drive voting decisions. Now, obviously, if people are fed up with a war, that can have an impact, but they they're voting based on the pocketbook, how the economy is doing and the like. And we're talking in the middle of June. Um memory is short with many voters and so who knows what's going to happen in the coming months. Um we do have a deregulation theme happening. We do have a boom in AI, which creates a lot of backlash um amongst both left and right leaning voters. Um and so how that will be managed might matter more. One of the things that I don't know everybody is aware of is that the Trump administration has said is if you build a data center, you also got to have to start generating your own energy. But, there are there are um challenges that the grid, for example, is not sufficiently strong to carry all this extra capacity. So, electricity rates have been going up for a lot of people. And even if you think, "Oh, I'm going to go in the countryside where nobody is." Apparently, the folks looking living locally don't really like it to have a huge construction site in front of their their pasture suddenly. And so, that's that's a huge political challenge. Um that said, the amount of money that's been thrown at AI is just amazing. And so, that leads to economic growth. Whether we're setting ourselves up for a {quote} and {unquote} bubble or not, I don't know whether we're 97, 98, 99, or 2000. But, there's a lot more debt financed. In that sense, having equity raises in the more public markets is fantastic news because if risk capital is is lost in a in a in a crash or bear market, so be it. People were aware of the risk that they were taking. It's a much bigger issue if things are debt financed and you have a bubble burst because that debt is going to be there. That's when the Fed has to step in and they can't really do much as a bubble like that is deflating. Um and there's a lot of circular financing. And so, but where we are on that cycle, I I just don't know. Um it it certainly is uh very {quote} and {unquote} interesting to have suddenly several trillion-dollar companies. >> And absolutely, and NVIDIA, just to your to that point, is also raising $20 billion today. So, they figured they might as well jump on that train. >> Yes, and and raising during the financial crisis, one of the things I I said is in 2008, um if if people at the the dot com bubble, right? When the dot com bubble burst, we did not have systemic risk. Um NASDAQ lost 80 plus percent, right? But it didn't cause a financial crisis. Um in the 2008, it was debt that was the issue. And so when we see companies raise equity capital, you can scratch your head saying, "Oh my god, it's too expensive." But so be it, right? If you've got the money and want to finance that growth, go for it. Who is it to say that these prices are too high? Um people were criticizing the Fed that they allowed these bubble to happen, but you don't want the central bank getting into asset price management. That is not a good idea. Now, what they do is the the flip side of that, they manage financial conditions. And you could argue that where current rates are, we are {quote} accommodative, right? It is it is possible to all this financing. And so there you can say, "Hey, should we be as accommodative as us?" And then of course their guide posts are supposed to be um inflation. And and here the question is, "Well, are we on the tail end of it or is there work to be done?" By the way, I'm quoting Kevin Warsh in the nomination hearings, he said there's more work to be done. Um that inflation is is is too high. >> Yeah. Well, actually you you do you're doing my job for me, but uh we we need to talk about the Fed now cuz it is Fed week and you you just gave us the perfect segway to talk about the role of the Fed moving forward. Kevin Warsh, I know you're you're personal he's a personal friend of yours, you mentioned to me before hitting the record button, and you know him. Uh I'm I'm curious, what do you expect him to do come Wednesday? Like what's the first press press conference going to look like and is he going to lay down the law? >> So I've gotten to know Kevin Warsh over the years. Um watched just most of his speeches and then yes, I've gotten to know him personally a bit as well. And I I deeply respect where he's coming from and it's puts me in a lot situation because I've historically been very much a critic of of of Fed chairs, but the reason he resigned in 2011, I think it was, from the Fed because while he had supported the emergency measures in 2008, he was a fierce critic that those measures weren't unbound promptly. And ever since then, he has criticized a lot of the things I've been critical of at the Fed. And so, of course, he people say, "Oh my god, he's he's going to lower rates because Trump wants him to lower rates." I He is his own man. Milton Friedman and George Shultz are kind of the the two people he he historically has looked up to and he thinks are kind of his guiding lights in in some ways. Um he is, when it comes to lower rates, he's he's known as a hawk and that's kind of genetically, if I might say so, he might be a hawk, but he does believe in the productivity boom. And to phrase this differently, and I don't want to words into his mouth, but we have such a debt challenge. The only way to deal with the debt is to outgrow that debt. And so, I would think if given the opportunity, he will want to allow the economy to to pursue that growth. And I I'm not really I I'm paraphrasing some of the things he he has said. Um now, of course, the other side of that is that inflation is high and the longer inflation is high, the more that the market may think that the Fed is quite okay with that. And Kevin Warsh has come out explicitly in saying that is not acceptable. Now, the challenge is, of course, that the the FOMC is quite divided and quite politicized. It's not helped by some things that's been happening behind the scenes. Um Chris Waller, he was one of the few who who cautioned early about inflation. Um he has been spreading some poison uh on the FOMC of late. He has been telling the regional Fed presidents, and for those who don't eat FOMC stuff for breakfast, that the Fed governors that are political nominees, and then there are the regional Fed presidents that that are appointed by by the banks. Um the the governors have a veto right, but they are fiercely independent. Um and they have been losing power over the years. It was set up as a spread-out decentralized system to to kind of have that independence, but as ca- as checks weren't physically sent across the country anymore and so forth, a lot of function was centralized. But Chris Waller has come out and wants to take further functions away, um notably also human resources. And so that's just sets a very, very confrontational tone. And so now Kevin Warsh comes in, has his own ideas about reform. And so the question is, what can he do? I happen to think that um Powell actually has been trying to present the Fed on a silver platter. Powell started talking about the productivity boom last December. He was asked in March about communications reform that's important to to Warsh, and said, "Yeah, I tried it, didn't quite work." Um now Kevin Warsh is much more an intellectual leader than than Powell ever was, um but he's got the work cut out for himself. For those who expect a major rate move on this week, uh I got to disappoint you, that's not going to happen. Um his job is to reinforce and have and get credibility with the market. At the same time, he might want to set the tone And so, the Fed watchers will get all over of exactly what he's going to do. But, as far as rates are concerned, there's not going to be so much. So, I can see that the FOMC statement gets slashed down to a bare minimum. Or that he'll skip the press conference. I don't think he'll skip it, but he might. Um the risk um with whatever he does is he talks differently from other Fed chairs. Um the market might misinterpret something, so we could have some moves in the market. He likes to give anecdotes and other things, and so um it could be that the market reads something into this that he doesn't mean to, but he will have to give some stern talk about inflation. So, maybe the market will say, "Oh my god, he's a super hawk." Um I would discount much of that. It's really He needs to build a coalition on the FOMC for his ideas. And by the way, these reforms he's talking about, they are super important. The reason why the Fed has been politicized is because the Fed has moved into this territory. People love to blame Trump, but Trump and other presidents just do what they always do. Trump, of course, in his his own style. But, the reason why politicians have gotten more involved with the Fed is because the Fed has gotten more involved in politics. And I say that because the Federal Reserve's job is monetary policy, not fiscal policy. The moment you go beyond setting interest rates or money supply into allocating credit to specific sector of the economy, you're conducting fiscal policy, and you're not an elected official. I'm a purist in that, so even when the Federal Reserve buys mortgage-backed securities, they are violating a of the core separation of duties between fiscal and monetary and of course the various emergency measures have gone way beyond what the Federal Reserve is supposed to do. And so the the work behind the scenes is important even though we are so much glued on where interest rates are going to be tomorrow. I don't think he has much choice on the rate path. The market is pretty much dictating that for the foreseeable future. >> Yeah, that's the bond market you're talking about, right? The 4.45% of the and okay. No, it's it's it's interesting of course. I'm curious like you you touched on a few things but maybe to summarize Axel from a market perspective, what are like two or three things you would look for in either the statement or in the press conference from Kevin Warsh like that would get you excited and maybe win the trust back from the from the market. Like what would you be looking for? >> Well, we know already he I mean last time they were at the dispense at the this this this this sense about additional cuts cutting. Warsh is not going to do any of this stuff. He doesn't like forward guidance. So, he's not going to say additional something rather. He's just going to scratch the entire thing, right? So, it's that sort of thing he's going to do. He's going to be more neutral. The idea is you're supposed to get into an FOMC meeting with an open mind, look at the data and make a decision. You can argue whether that decision should be more based on a what the economists call a reaction function, should be rules based um or whether it should be reading the tea leaves and coming up with something on the spot. um Kevin Warsh is in the rules based camp. Historically ever Bernanke, Yellen, and Powell were in the reading the tea leaves camp. And there's been there's been some belittling of the folks on the rules based camp and so this is a culture shock for the Fed that those watching the Fed closely, they will make a big deal out of these things. Um one of the things, for example, every rules-based guy um wants to wants to ultimately have discretion as well. But one of the things one can do is when you publish what you're going to do, what you can also talk about the Taylor rule. The Taylor rule is a very simple method about um based on unemployment and and inflation, this is where rates should be. And to the extent that you deviate from that, you give an explainer. That's the sort of thing a hawk might be doing. I'm not saying he will do that, but that's the sort of philosophical thing that that he might be doing. Whereas um the uh Powell would doesn't want to go down that rabbit hole, right? Um and so >> [sighs] >> we'll we'll see, right? I mean, it's a um the the key thing is you don't have a press conference if you don't have anything to say. Um because otherwise you just paint yourself into a corner. And you have this I mean, a no Nobel Prize has been awarded for the cognitive bias you have once you articulate a view. And so it's it's a really bad habit. Now, the regional Fed presidents are independent, and he can tell them to shut up. That doesn't mean they will. Um but the tone is set at the top. And so he got a lot of work cut out for himself behind the scenes to to kind of set the right tone. And the reason this all matters, since we are a precious metals um podcast here in some ways, is because rates will be lower. The cost of financing is lower when monetary policy is more effective. Um it helps on the long bond and the like. And so I will be watching the long bond more so than anything else. Um in on the short end of the yield curve in particular, there's often volatility around what the Fed chair says, in particular if something is misunderstood the like. So, filtering out the noise there, um but a new sheriff is in town and it matters. The sheriff controls the bazooka. Everything is priced off off that bazooka. And so, that is why we care and that's why we talk about it so much. >> Absolutely. And I'm curious like Axel, maybe last question here for this conversation, but on on Wednesday 9:00 or 7:31 p.m. European Central Time, which is 10:31 your time. I think that's when the announcement is being made if I'm not mistaken. Or it might might be 10:00 a.m. sharp, but let's say a minute later. What what do you think the gold price will be? Red or green? >> I think that's with no disrespect a useless exercise because the the bots the bots will react to it. They will see something in the statement and there will be knee-jerk reactions. Um on that note, you can see that um in the in the physical gold ETFs, they tend to trade with a 1 cent spread. And before major economic releases, the spread widens. And the reason they they they trade so tightly is because the market makers are providing a market and the to get a little technical on that side maybe for a moment. Um the market makers are given an incentive and the monetary incentive to make a market. Um not only do they work with so-called authorized participants to be able to exchange gold for shares and vice versa, but the New York Stock Exchange provides them what they call a rebate. Basically, on when you buy something on New York Stock Exchange, there is an exchange fee that you're paying. Part of that fee is given to the market makers. And so, they can always get an execution that's just a hairline, a fraction of a cent better than yours. And so, and then they don't care about making money on every trade. They use statistical methods that on average they make money. And say, there is and there's a so-called lead market maker that gets a bigger rebate. And so, that's why these these spreads are so tight because any ETF trades as well as the market makers' ability to hedge themselves. And with gold, it's very straightforward. Um long story short, when there are major economic releases, the spreads widen because the hedging becomes more difficult because of some bot might throw a curveball. And so, in the seconds leading up to an FOMC release, the spreads widen, and then it comes down depending on the type of news quite quickly again. Um so, I'm giving you this very technical answer. Um >> [sighs and gasps] >> Who knows? I I actually think that the statement will say very little. I think during the the talk, if he gives a press conference, he will have to say more work needs to get done. And during Kevin Warsh's nomination hearings, the market didn't take that seriously. I think the gold will take a tick down when he when he says those words. I wouldn't be surprised if he if he kind of has to say that. >> No, absolutely. I actually really appreciate the explanation as well. I wasn't really aware of how the rebates and how that trading works as well. So, that's something >> Oh, there is. I I live that stuff, so I can I can put everybody to sleep on this call to to to tell them [laughter] a lot more. The The microstructure of these markets does does matter. And and that's why I said, um I nobody understands the oil market. Nobody There are of course those that do. Um I I understand how ETFs work. I understand how precious metals market work. I I live and breathe that stuff. For for those who are not aware, we manage about 4 billion in the space in the precious metals space. And so, um I I I see that stuff. And uh and this the microstructure does matter. >> 100% absolutely. No, I appreciate your insights there actually. And where where can our audience follow more of your work Axel? >> merkinvestments.com is our website. Can't talk about our products stay up, but you can see them. On Twitter at Axel Merk is where you can follow me. I will tweet about the Fed actively during the FOMC [laughter] meeting. I can't tweet about products, but I'm quite accessible. So shoot me a message and I'll I'll get back to you if you have any questions. >> Absolutely. And you always do a live interview with our good friend Adam Taggart over on his channel Thoughtful Money right after the FOMC. So if anybody's interested um they they can tune in there. I don't mind tooting Adam's horn here a little bit as well. >> I just got a message that our call is postponed till Thursday morning East Coast time um because of scheduling conflict. So um it's not going to be as late for the European audience as as it otherwise >> There we go. We'll take advantage of it. Fantastic. We'll we'll make use of that. Fantastic. Axel, thank you so much for coming on. It's a great pleasure to always chat with you. Thank you so much for your time. We'll talk maybe in September again. See what the summer has in store for us. And we'll we'll catch up there. Maybe I'll never see you at the conferences. I see your colleagues, but I never get to see you in like Beaver Creek or those events. But We're we're overdue for >> conferences, but um it's yes. I send my portfolio managers there and they they're doing a fantastic job. >> Absolutely. No, fantastic. Axel, thank you so much and to everybody else. Thank you so much for tuning in. Really curious of course how what you think the Fed will do here moving forward. Should they be more reactive, proactive? What do you think about the trimmed mean for the for the inflation calculation here as well? Of course, put it in the comments down below. It helps us out tremendously with the algorithm. We do want to hear from you. And of course like is gold thesis still intact? And has it changed over the last couple of months? I do want to hear from you on that topic as well. Put it down below. Thank you so much for tuning in. Don't let the emotions run your investments for you. Take care. >> Mhm.
Gold Is Exploding, BUT The Fed Could Kill The Rally | Axel Merk
Summary
Transcript
Gold is ultimately competing with the real value of money in the long run. >> There is a reason why the market thinks this is a shock. There will be a path forward. Reason why people will disagree of how substantial this current agreement is, but the markets are moving back to normal and the the the obviously the the the important part to look is the forward curve in oil markets. We're not back to where we were 6 months ago, but this is one of the lowest levels as far as pricing going forward is concerned. >> Gold is having an absolute day today. It is Monday, June 15th as we're recording this at 6:00 p.m. Central European Summertime, but uh gold is reacting very positively to the peace deal announced or the MOU announced between the US and Iran. Of course, oil is plummeting. Silver is also having a day, but honestly, I'm a bit disappointed in only in a measly 4.4%. Of course, I'm trying to be funny here, but given the volatility in gold and silver and silver in particular, it's almost seems like an underperformance. We'll have to discuss We'll have to address this. Like what what does that mean for gold and silver? Is the downtrend stopped? Are we moving higher? Are we going to see new all-time highs? Of course, I'm being facetious here a little bit, but I'm curious, what does this deal mean for the precious metals? And we'll have to discuss Since it is Fed week, we'll have to discuss inflation, but also the new Fed chair, Kevin Warsh. What is he going to say on Wednesday? How long is that press conference going to be? I'm curious. I haven't checked Polymarket or Kalshi, but curious what the over and under is for the press conference and how long it will be. So, lots to discuss with my guest, Axel Merk. He's the founder, he's the president, he's the man behind Merk Investments. Really excited to have him back on the program. Before I switch over, quick reminder, help us out with the algorithm. Hit that like and subscribe button. Leave a comment down below. We tremendously appreciate that. Now, Axel, it is a great pleasure to welcome you back on the program. It's good to see you again. >> It's good to see you and I know that you're not just giving the date we're speaking but the time of day. That's what we have come to, right? Who knows what the markets are going to do in 5 minutes? >> Yeah, it's like I've been reading the comments and people complain about not giving dates although it's usually in the description but since people seem to be trading off these interviews not financial advice and people shouldn't be doing that. They always ask for oh, when was this recorded? So, you know, trying to be a bit funny but also timestamp it cuz things are moving quite quickly today and we have lots to discuss actually. >> Just just just on this trading off news. So, I would severely discourage anyone doing that. I of course have opinions, lots of them. But I don't have a crystal ball. I presume none of the other guests. So, the value I think that I can contribute and presumably other guests is we can get you thinking about scenarios. I can get you out of your comfort zone and what that hopefully does is that to the extent that you have an investment process, you can cross-check what you hear against what I have to say. But please don't buy or sell based on anything that I say. >> 100% and that's why we try to bring diverse guests onto this channel as well cuz you might not always agree with the opinions of our guests. So, um >> I can disagree with myself for that for that matter. I can if if needed. Yeah. [laughter] >> Perfect. Perfect. Well, we'll figure that out together here actually during the conversation but why don't we start with gold and silver today? Gold in particular is having a great day over 3% for the precious metal it is a big move. Um let's set the scene here a little bit actually. It seems like in investors are running back to to gold. What why is that? Why is it reacting now so positively to the headlines from just last night? >> So, the way I have framed the Iran war in the context of precious metals is that ever since the onset of the Iran war of course volatility spiked that took down some leverage of some speculators but beyond that I've been arguing that the markets are pricing this in as a shock rather than structural change, which means that there are some micro aspects in the market that are quite relevant. Notably, whenever the fear about the war has flared up, bonds were selling off. Um the 30-year bond, as we're talking, is uh below 5%. We are currently at 4.96%. Um it was about, I don't have it in front of me, but at 520 or so. Um gold is ultimately competing um with the real value of money in the long run. And one thing in the long run that hasn't changed is inflation expectations. Now, some people will tell me that nobody has a clue what inflation expectations will be and what inflation will be in 10 years, but there are market metrics for that. And so, the market metrics suggested tighter financial conditions in the long run. And that is why the price of gold had been so sensitive. This happens to be highly correlated with risk assets, with the S&P 500. Um now, some people will say, "Hey, last year that correlation broke down entirely, so why bother now?" Well, anybody who's followed gold knows that correlations of gold versus anything are not particularly stable. Um but for the time being, it's all about Iran. People have been glued on it, and now that there is some relief that's been confirmed by Iran, um the market is taking it seriously. Obviously, Israel has said, "Hey, maybe maybe we don't like this so much." So, who knows what's going to happen next. But But the other thing to keep in mind is in the long run, um there will be a solution that the market comes up with. And so, everything else is details. Um take a scenario that does not seem to be materialize in that Iran would charge a fee at all. Well, that's one to two bucks a barrel and presumably absorbed locally. So, there will be a path forward as long as oil is flowing in one way or another. And even if it weren't to flow, um people will think of alternatives, um build more of solar panels or or nuclear power. And then I'm saying that um only because there is a reason why the market thinks this is a supply shock. There will be a path forward. Um reasonable people will disagree of how substantial this current agreement is, but the markets are moving back to normal and the the the obviously the the important market to look at is the forward curve in oil markets. We're not back to where we were 6 months ago, but this is one of the lowest levels um as far as pricing going forward is concerned. Obviously, things are not back to normal normal anytime soon, but this is a huge relief and the important question going forward is when are we going to kind of disconnect the disentangle ourselves from this this very tight relationship that's that's linked to Iran because everybody is somewhat tired of it and wants to move on. >> Yeah, yet we yet the market is reacting very aggressively to the headlines, right? Uh we we've had how many false starts to a peace deal? Um I stopped counting, but the market still reacts to it, right? Um so, the question is like when do we zoom out? Like when does it not become material anymore? And you you've you've touched on oil, which is really interesting topic cuz it seems to be there is enough oil out there. Uh it was never a big issue. I think even Javier Blas from from Bloomberg mentioned that like we we're expecting a gluttony of oil now hitting the markets, which is not good for prices. So, what what should we be paying attention to? Like the the market seems to be confused in my opinion. Like what is noise? What is signal here, Axel? >> Well, if you're not confused, you're not paying attention. And uh people will disagree on the specifics. How much oil is made come out? Why did the Chinese not use as much oil as they had? There's lots and lots of questions. And uh part of the reason there's this confusion is none of us are experts in oil. Um and a few of us knew what would happen um why oil prices were negative. I happen to think I know a thing about two about precious metals and the the micro dynamics in that market when there were fears of tolls and how how the clearing works in London. But I I have a view on oil. I monitor oil, but we really don't know the details. Now, the good news about the internet is you suddenly have all these experts and we're trying to discern which ones are are relevant, which ones are not. And so, I think what we can do is we can look at it from a very high-level perspective. And uh one of the things, by the way, that's been happening is Europe has been buying more oil from the US. And And so, there's been And of course, it it changes the mindset in the rest of the world. Do they want to be as dependent on the Strait of Hormuz? Are they creating other things? So, there will be medium and long-term things. But one of the beauties about gold is it's so darn simple, right? It's just this barbaric relic. It's just a brick. Whereas, the moment you go to silver or God forbid oil, it is so darn complicated that nobody knows exactly what will happen when. Um And And so, in the miners, we of course need energy, right? Some people are saying that oh, it's only about 10 15% of of production cost is mining. But if you kind of do it all inclusive of everything else that that comes with it, you you end up being at 20 25% because all the goods that that that you use, all the machinery, all that there is energy cost comes comes into everything. And so, trying to disentangle that. And the other side of it is the the ingenuity of of CEOs, of management to find alternatives, right? There is always a different path. How can you when you have a shortage? Well, how do you get things working anyway? Um and so we got to make sure we don't get too much drawn into it. At the same time, we have to respect that the correlation to the price of oil and gold is currently very high. And what I'm looking for right now is is that correlation going to break down? Once that correlation breaks down, then we are in a new phase. I'm looking forward to it, but just because I want something to happen, of course, doesn't mean it will happen. >> Well, the question is like how transitory is inflation? Right? >> Ah. >> Apologies. Right? Transitory, that famous T word. >> Yes, that's a I mean, the >> [sighs] >> the wage pressures haven't been there. Let's put it this way. That's a very important aspect. If wage pressures were there, um and that's by the way both in the US, but also in Europe, the ECB just had a meeting where they said wage pressure is simply not there. Um that's a huge relief to central bankers. Now, of course, we've had all these shocks. Kevin Warsh, who we talked about more, has been long a critic of the Fed, is saying they've come up with a whole bunch of excuses. The fact is inflation is over 2%. That's a problem, and it's the Fed's problem. You can't blame geopolitics. You have to blame the Fed for these things. Right? Um now, it's easier to criticize than to actually run the shop and then and and do things differently. Um but the I think inflation in the short term is mostly a political problem. Um people are struggling on the lower end of the income spectrum, right? If you're at the upper end of the K-shaped economy, um hey, you're you're taking advantage of the positive aspect aspects of inflation, higher stock prices. And ending on the day, the day as we're talking stock prices are higher, right? Um so if the cost of beef is higher, it's not the end of the world, but at the lower end of that spectrum, um the the cost of a homeowner's insurance or rental insurance, of cars, of everything, uh car insurance is is is just very high. Now the folks, the call them cynics, um they had said, "Well, the folks who are at the bottom end of the income spectrum weren't about to take out a mortgage to buy a home anyway." So, who cares? And I'm not trying to belittle the plight of anybody at the lower end of that that K-shaped curve, but the the point is that the stock market, the precious metals market might not be all that sensitive to what happens down there. And so, I think my own conclusion from from those things is that it matters a lot um when it comes to voting. Um people who are upset will vote for more populist politicians, not just on the right, also on the left, and that can lead to less stability. So it does matter. It doesn't matter necessarily to the stock market today or tomorrow, but it does matter to to kind of the fabric of society, which has huge implications for for for growth. And just throw out there, right? The the wealth tax that's been proposed in California being just an example of that. >> Where where are you moving to, Axel? You you just said like you're >> [laughter] >> I'm for for those who don't know, I I have lived in California for 25 years. >> [clears throat] >> And uh yes, if that wealth tax is introduced, I'm seriously contemplating to to leave. Good reason and I know I'm not a billionaire, just to make that clear, but it just goes against just about everything that I believe in, just out of principle, that expropriating a few people is just not the right path forward for any issues. And uh there are many other things that are wrong with with that entire setup. Um and I I raised uh four children here, and so that's kind of what got me got me tied down here, but um there's there's a limit to the pain threshold that I have. >> [laughter] >> Well, I I can imagine. So, fortunately I'm not in your shoes, but I can I can imagine. Um before we talk about the Fed and how the Fed should handle inflation at its meeting this week, your actual just just on the transitory topic again. Oil is coming down dramatically. It's it's come down over the I think it's 11 12% over the last few days in in particular, and it seems like it wants to go lower just looking at the charts. Again, not a chart technician here, but it looks like it wants to go much lower. And as I mentioned, there's a glut in the US well. So, inflation should be coming down. The question though is is that intentional? Meaning uh I'm trying to get a little political here with you, Axel, just for for a moment cuz we have midterm elections coming up in the US, and a lot of concessions were made seemingly getting this MOU across the line here. Do you Do you think politics played any role meaning midterm elections trying to get that K-shaped uh the bottom of the K um you know, more more more happy here trying to improve ratings? >> Well, those who don't like Trump will find lots of things wrong in this. Um and those who like him, there's there's people will scratch their head. I think a key reason why we haven't seen all the details is to give less substance to to the criticism because if you don't know what's going to happen, you're not going to criticize as much. The way I would look at it, and sorry for punting the political question a little bit, is if you take the water under the bridge philosophy, right? You're in a war, you have this conflict, you can argue was it good or bad to go in, but you are where we are, and so now we are appear to be wrapping up the current phase, moving to a new phase. Who knows how stable that's going to be? Who knows whether they're going to be rockets fired and whatnot, but the market reacts to that as as a relief, right? And and rightfully so. Um does that mean Iran is going to give up its nuclear program? I don't know. I mean, they need an enemy and they're not going to give up they're not going to be friends with the US. Um it's their their entire existence is about having the US as an enemy. So, dealing with that is not easy and Israel is of course in a very tough spot because they don't want Iran to get stronger again and I I hear very large amounts of money being offered here for reconstruction in return for for um for concessions. So, I'm not surprised Israel is scratching its head. The Middle East is a mess, has always been a mess. I'm trying to keep on the mind as an analyst rather than to crucify one or the other. Um but you you mentioned the midterm elections. Historically anyway, foreign policy does not drive voting decisions. Now, obviously, if people are fed up with a war, that can have an impact, but they they're voting based on the pocketbook, how the economy is doing and the like. And we're talking in the middle of June. Um memory is short with many voters and so who knows what's going to happen in the coming months. Um we do have a deregulation theme happening. We do have a boom in AI, which creates a lot of backlash um amongst both left and right leaning voters. Um and so how that will be managed might matter more. One of the things that I don't know everybody is aware of is that the Trump administration has said is if you build a data center, you also got to have to start generating your own energy. But, there are there are um challenges that the grid, for example, is not sufficiently strong to carry all this extra capacity. So, electricity rates have been going up for a lot of people. And even if you think, "Oh, I'm going to go in the countryside where nobody is." Apparently, the folks looking living locally don't really like it to have a huge construction site in front of their their pasture suddenly. And so, that's that's a huge political challenge. Um that said, the amount of money that's been thrown at AI is just amazing. And so, that leads to economic growth. Whether we're setting ourselves up for a {quote} and {unquote} bubble or not, I don't know whether we're 97, 98, 99, or 2000. But, there's a lot more debt financed. In that sense, having equity raises in the more public markets is fantastic news because if risk capital is is lost in a in a in a crash or bear market, so be it. People were aware of the risk that they were taking. It's a much bigger issue if things are debt financed and you have a bubble burst because that debt is going to be there. That's when the Fed has to step in and they can't really do much as a bubble like that is deflating. Um and there's a lot of circular financing. And so, but where we are on that cycle, I I just don't know. Um it it certainly is uh very {quote} and {unquote} interesting to have suddenly several trillion-dollar companies. >> And absolutely, and NVIDIA, just to your to that point, is also raising $20 billion today. So, they figured they might as well jump on that train. >> Yes, and and raising during the financial crisis, one of the things I I said is in 2008, um if if people at the the dot com bubble, right? When the dot com bubble burst, we did not have systemic risk. Um NASDAQ lost 80 plus percent, right? But it didn't cause a financial crisis. Um in the 2008, it was debt that was the issue. And so when we see companies raise equity capital, you can scratch your head saying, "Oh my god, it's too expensive." But so be it, right? If you've got the money and want to finance that growth, go for it. Who is it to say that these prices are too high? Um people were criticizing the Fed that they allowed these bubble to happen, but you don't want the central bank getting into asset price management. That is not a good idea. Now, what they do is the the flip side of that, they manage financial conditions. And you could argue that where current rates are, we are {quote} accommodative, right? It is it is possible to all this financing. And so there you can say, "Hey, should we be as accommodative as us?" And then of course their guide posts are supposed to be um inflation. And and here the question is, "Well, are we on the tail end of it or is there work to be done?" By the way, I'm quoting Kevin Warsh in the nomination hearings, he said there's more work to be done. Um that inflation is is is too high. >> Yeah. Well, actually you you do you're doing my job for me, but uh we we need to talk about the Fed now cuz it is Fed week and you you just gave us the perfect segway to talk about the role of the Fed moving forward. Kevin Warsh, I know you're you're personal he's a personal friend of yours, you mentioned to me before hitting the record button, and you know him. Uh I'm I'm curious, what do you expect him to do come Wednesday? Like what's the first press press conference going to look like and is he going to lay down the law? >> So I've gotten to know Kevin Warsh over the years. Um watched just most of his speeches and then yes, I've gotten to know him personally a bit as well. And I I deeply respect where he's coming from and it's puts me in a lot situation because I've historically been very much a critic of of of Fed chairs, but the reason he resigned in 2011, I think it was, from the Fed because while he had supported the emergency measures in 2008, he was a fierce critic that those measures weren't unbound promptly. And ever since then, he has criticized a lot of the things I've been critical of at the Fed. And so, of course, he people say, "Oh my god, he's he's going to lower rates because Trump wants him to lower rates." I He is his own man. Milton Friedman and George Shultz are kind of the the two people he he historically has looked up to and he thinks are kind of his guiding lights in in some ways. Um he is, when it comes to lower rates, he's he's known as a hawk and that's kind of genetically, if I might say so, he might be a hawk, but he does believe in the productivity boom. And to phrase this differently, and I don't want to words into his mouth, but we have such a debt challenge. The only way to deal with the debt is to outgrow that debt. And so, I would think if given the opportunity, he will want to allow the economy to to pursue that growth. And I I'm not really I I'm paraphrasing some of the things he he has said. Um now, of course, the other side of that is that inflation is high and the longer inflation is high, the more that the market may think that the Fed is quite okay with that. And Kevin Warsh has come out explicitly in saying that is not acceptable. Now, the challenge is, of course, that the the FOMC is quite divided and quite politicized. It's not helped by some things that's been happening behind the scenes. Um Chris Waller, he was one of the few who who cautioned early about inflation. Um he has been spreading some poison uh on the FOMC of late. He has been telling the regional Fed presidents, and for those who don't eat FOMC stuff for breakfast, that the Fed governors that are political nominees, and then there are the regional Fed presidents that that are appointed by by the banks. Um the the governors have a veto right, but they are fiercely independent. Um and they have been losing power over the years. It was set up as a spread-out decentralized system to to kind of have that independence, but as ca- as checks weren't physically sent across the country anymore and so forth, a lot of function was centralized. But Chris Waller has come out and wants to take further functions away, um notably also human resources. And so that's just sets a very, very confrontational tone. And so now Kevin Warsh comes in, has his own ideas about reform. And so the question is, what can he do? I happen to think that um Powell actually has been trying to present the Fed on a silver platter. Powell started talking about the productivity boom last December. He was asked in March about communications reform that's important to to Warsh, and said, "Yeah, I tried it, didn't quite work." Um now Kevin Warsh is much more an intellectual leader than than Powell ever was, um but he's got the work cut out for himself. For those who expect a major rate move on this week, uh I got to disappoint you, that's not going to happen. Um his job is to reinforce and have and get credibility with the market. At the same time, he might want to set the tone And so, the Fed watchers will get all over of exactly what he's going to do. But, as far as rates are concerned, there's not going to be so much. So, I can see that the FOMC statement gets slashed down to a bare minimum. Or that he'll skip the press conference. I don't think he'll skip it, but he might. Um the risk um with whatever he does is he talks differently from other Fed chairs. Um the market might misinterpret something, so we could have some moves in the market. He likes to give anecdotes and other things, and so um it could be that the market reads something into this that he doesn't mean to, but he will have to give some stern talk about inflation. So, maybe the market will say, "Oh my god, he's a super hawk." Um I would discount much of that. It's really He needs to build a coalition on the FOMC for his ideas. And by the way, these reforms he's talking about, they are super important. The reason why the Fed has been politicized is because the Fed has moved into this territory. People love to blame Trump, but Trump and other presidents just do what they always do. Trump, of course, in his his own style. But, the reason why politicians have gotten more involved with the Fed is because the Fed has gotten more involved in politics. And I say that because the Federal Reserve's job is monetary policy, not fiscal policy. The moment you go beyond setting interest rates or money supply into allocating credit to specific sector of the economy, you're conducting fiscal policy, and you're not an elected official. I'm a purist in that, so even when the Federal Reserve buys mortgage-backed securities, they are violating a of the core separation of duties between fiscal and monetary and of course the various emergency measures have gone way beyond what the Federal Reserve is supposed to do. And so the the work behind the scenes is important even though we are so much glued on where interest rates are going to be tomorrow. I don't think he has much choice on the rate path. The market is pretty much dictating that for the foreseeable future. >> Yeah, that's the bond market you're talking about, right? The 4.45% of the and okay. No, it's it's it's interesting of course. I'm curious like you you touched on a few things but maybe to summarize Axel from a market perspective, what are like two or three things you would look for in either the statement or in the press conference from Kevin Warsh like that would get you excited and maybe win the trust back from the from the market. Like what would you be looking for? >> Well, we know already he I mean last time they were at the dispense at the this this this this sense about additional cuts cutting. Warsh is not going to do any of this stuff. He doesn't like forward guidance. So, he's not going to say additional something rather. He's just going to scratch the entire thing, right? So, it's that sort of thing he's going to do. He's going to be more neutral. The idea is you're supposed to get into an FOMC meeting with an open mind, look at the data and make a decision. You can argue whether that decision should be more based on a what the economists call a reaction function, should be rules based um or whether it should be reading the tea leaves and coming up with something on the spot. um Kevin Warsh is in the rules based camp. Historically ever Bernanke, Yellen, and Powell were in the reading the tea leaves camp. And there's been there's been some belittling of the folks on the rules based camp and so this is a culture shock for the Fed that those watching the Fed closely, they will make a big deal out of these things. Um one of the things, for example, every rules-based guy um wants to wants to ultimately have discretion as well. But one of the things one can do is when you publish what you're going to do, what you can also talk about the Taylor rule. The Taylor rule is a very simple method about um based on unemployment and and inflation, this is where rates should be. And to the extent that you deviate from that, you give an explainer. That's the sort of thing a hawk might be doing. I'm not saying he will do that, but that's the sort of philosophical thing that that he might be doing. Whereas um the uh Powell would doesn't want to go down that rabbit hole, right? Um and so >> [sighs] >> we'll we'll see, right? I mean, it's a um the the key thing is you don't have a press conference if you don't have anything to say. Um because otherwise you just paint yourself into a corner. And you have this I mean, a no Nobel Prize has been awarded for the cognitive bias you have once you articulate a view. And so it's it's a really bad habit. Now, the regional Fed presidents are independent, and he can tell them to shut up. That doesn't mean they will. Um but the tone is set at the top. And so he got a lot of work cut out for himself behind the scenes to to kind of set the right tone. And the reason this all matters, since we are a precious metals um podcast here in some ways, is because rates will be lower. The cost of financing is lower when monetary policy is more effective. Um it helps on the long bond and the like. And so I will be watching the long bond more so than anything else. Um in on the short end of the yield curve in particular, there's often volatility around what the Fed chair says, in particular if something is misunderstood the like. So, filtering out the noise there, um but a new sheriff is in town and it matters. The sheriff controls the bazooka. Everything is priced off off that bazooka. And so, that is why we care and that's why we talk about it so much. >> Absolutely. And I'm curious like Axel, maybe last question here for this conversation, but on on Wednesday 9:00 or 7:31 p.m. European Central Time, which is 10:31 your time. I think that's when the announcement is being made if I'm not mistaken. Or it might might be 10:00 a.m. sharp, but let's say a minute later. What what do you think the gold price will be? Red or green? >> I think that's with no disrespect a useless exercise because the the bots the bots will react to it. They will see something in the statement and there will be knee-jerk reactions. Um on that note, you can see that um in the in the physical gold ETFs, they tend to trade with a 1 cent spread. And before major economic releases, the spread widens. And the reason they they they trade so tightly is because the market makers are providing a market and the to get a little technical on that side maybe for a moment. Um the market makers are given an incentive and the monetary incentive to make a market. Um not only do they work with so-called authorized participants to be able to exchange gold for shares and vice versa, but the New York Stock Exchange provides them what they call a rebate. Basically, on when you buy something on New York Stock Exchange, there is an exchange fee that you're paying. Part of that fee is given to the market makers. And so, they can always get an execution that's just a hairline, a fraction of a cent better than yours. And so, and then they don't care about making money on every trade. They use statistical methods that on average they make money. And say, there is and there's a so-called lead market maker that gets a bigger rebate. And so, that's why these these spreads are so tight because any ETF trades as well as the market makers' ability to hedge themselves. And with gold, it's very straightforward. Um long story short, when there are major economic releases, the spreads widen because the hedging becomes more difficult because of some bot might throw a curveball. And so, in the seconds leading up to an FOMC release, the spreads widen, and then it comes down depending on the type of news quite quickly again. Um so, I'm giving you this very technical answer. Um >> [sighs and gasps] >> Who knows? I I actually think that the statement will say very little. I think during the the talk, if he gives a press conference, he will have to say more work needs to get done. And during Kevin Warsh's nomination hearings, the market didn't take that seriously. I think the gold will take a tick down when he when he says those words. I wouldn't be surprised if he if he kind of has to say that. >> No, absolutely. I actually really appreciate the explanation as well. I wasn't really aware of how the rebates and how that trading works as well. So, that's something >> Oh, there is. I I live that stuff, so I can I can put everybody to sleep on this call to to to tell them [laughter] a lot more. The The microstructure of these markets does does matter. And and that's why I said, um I nobody understands the oil market. Nobody There are of course those that do. Um I I understand how ETFs work. I understand how precious metals market work. I I live and breathe that stuff. For for those who are not aware, we manage about 4 billion in the space in the precious metals space. And so, um I I I see that stuff. And uh and this the microstructure does matter. >> 100% absolutely. No, I appreciate your insights there actually. And where where can our audience follow more of your work Axel? >> merkinvestments.com is our website. Can't talk about our products stay up, but you can see them. On Twitter at Axel Merk is where you can follow me. I will tweet about the Fed actively during the FOMC [laughter] meeting. I can't tweet about products, but I'm quite accessible. So shoot me a message and I'll I'll get back to you if you have any questions. >> Absolutely. And you always do a live interview with our good friend Adam Taggart over on his channel Thoughtful Money right after the FOMC. So if anybody's interested um they they can tune in there. I don't mind tooting Adam's horn here a little bit as well. >> I just got a message that our call is postponed till Thursday morning East Coast time um because of scheduling conflict. So um it's not going to be as late for the European audience as as it otherwise >> There we go. We'll take advantage of it. Fantastic. We'll we'll make use of that. Fantastic. Axel, thank you so much for coming on. It's a great pleasure to always chat with you. Thank you so much for your time. We'll talk maybe in September again. See what the summer has in store for us. And we'll we'll catch up there. Maybe I'll never see you at the conferences. I see your colleagues, but I never get to see you in like Beaver Creek or those events. But We're we're overdue for >> conferences, but um it's yes. I send my portfolio managers there and they they're doing a fantastic job. >> Absolutely. No, fantastic. Axel, thank you so much and to everybody else. Thank you so much for tuning in. Really curious of course how what you think the Fed will do here moving forward. Should they be more reactive, proactive? What do you think about the trimmed mean for the for the inflation calculation here as well? Of course, put it in the comments down below. It helps us out tremendously with the algorithm. We do want to hear from you. And of course like is gold thesis still intact? And has it changed over the last couple of months? I do want to hear from you on that topic as well. Put it down below. Thank you so much for tuning in. Don't let the emotions run your investments for you. Take care. >> Mhm.