Axel Merk: Fed Preventing Recessions Creates Bigger Problems – Why Gold Recognizes This
Summary
Monetary Policy and Fiscal Dynamics: Axel Merk discusses how monetary policy is increasingly influenced by fiscal policy, leading to challenges in addressing long-term economic issues, with gold and gold miners benefiting from these dynamics.
Gold Market Insights: Merk highlights the significant interest in gold and gold miners, noting the rise in assets under management and the perception of gold as a hedge against fiscal instability and inflationary pressures.
Gold's Price Movement: The podcast explores gold's recent record highs, driven by changing perceptions and macroeconomic factors, with gold's volatility comparable to equity markets.
Gold Mining Sector: The discussion covers the speculative nature of junior miners versus major producers, emphasizing the importance of management quality and the challenges in the mining industry.
Federal Reserve's Role: Merk criticizes the Federal Reserve's micromanagement of the economy, arguing it leads to inefficient capital allocation and increased political interference.
Silver Market Considerations: Silver's dual role as an industrial and precious metal makes it more volatile than gold, with its price influenced by economic conditions and industrial demand.
Investment Strategy: Merk advises investors to have a clear investment process, manage risk according to personal tolerance, and focus on long-term financial health and spending control.
Transcript
Ultimately, the monetary policy is a slave of of fiscal policy and but they have been egging the the fiscal policy makers on so to speak in in finding new ways in in not addressing the real problems and and so people shall be excused to say well maybe we'll diversify a little bit um into some things and then they look at things and and gold and gold miners are are but one of the beneficiaries as part of that process. Axel Murk, CIO of Merc Investments, a friend of this show, one of the earliest guests on this show, I should note. It is so great to welcome you back. It's been exactly 6 months since our last conversation. There is so much interest in having you on the show in particular. And I was just looking the last time you and I spoke exactly 6 months ago, you had about two billion in AUM and you are just really close now to three billion in AUM. So I think it's a signal of the interest of what is happening in the world in which you operate. Great to welcome you back on the show. Great to see you as always, Axel. I appreciate you. Great to be with you. It feels much longer. And for those who don't know me, our focus is gold and gold miners and the reflection and increase in assets under management to a significant extent reflects the interest that investors have taken on in the space. And one of the reasons I wanted you on this show is because I in side conversations people keep asking about the gold miners and I was like hm I know someone who's an expert in this space that I would love to get on but before we even get into the gold miners and what's happening in gold. Let's start where we always start and like you said it feels like it's been a lot longer than 6 months. But let's just kind of frame things up with the big picture macro view. You are an expert on those macro trends. So, where we are today, where you see things headed, what is on your radar, what are you paying attention to? And Axel, as you know, on the show, you can take all the time you need to set the table. Given that we talked 6 months ago, this was before quote unquote liberation day. And I may have touched on it then because I did actually publish a an article on this before liberation day. When you have tariffs, you're not just impacting the flow of goods, you're impacting financial flows. And uh it's an angle I like to emphasize because I don't think it's it's mentioned enough. when you pretty much throw a wrench into the so-called exorbitant privilege. Um, it's not that you're destroying it with tariffs, but what happens is that this machinery called the US where you borrow cheaply to invest in higher returns abroad um gets rattled and it increases the borrowing cost. Notably, long-term rates go higher and then of course that means that deficits have to be financed more domestically. And uh in the absence of fiscal discipline, pressure increases on the Federal Reserve. And guess what? That's exactly what's been playing out. And so I mentioned that as a framework of of where we are and all of this what what this has led to that a lot of the views that that we have discussed over the years and have moved more from the fringe as a as a kind of remote risk scenario more towards the mainstream and to just tie it to the market the gold and gold mining market where where we are active in because that market isn't all that huge it can have an outsized impact on the returns. Now, uh obviously the broader context is that asset valuations are are somewhat elevated, that the Federal Reserve is on easing trend despite still having inflationary pressures. So, there's a lot of other drivers here and and ultimately we're always trying to fit a macro story onto what's happening in the markets. The markets move because of supply and demand and and then we like to put a nice story to it. um it just happens to be that the story has been panning out as um as feared or anticipated depending on on how you are invested and how you stand on these topics. Yeah, it's an interesting point you make about you know kind of moving from the fringe and moving toward more of the mainstream. Would you mind just elaborating a little bit more on that idea? Well, to to just take our space, right, the investors we see are the the folks concerned about the purchasing power of the dollar, the gold bugs or anybody else and that sort. So, that's what I'm referring to. Other investors are diversification investors, speculators, th those have always been around and yes, they have a greater interest, especially when the price of gold moves up, then speculators might be moving from meme stocks and crypto more back to gold. they're not very loyal, but the the investor I'm referring to is really the one that's concerned about the long-term fiscal sustainability. And of course, that's a theme that's been around for decades. It's always a problem for tomorrow. And the one thing we do know is that policy makers only get their act together when the market pushes them to get their act together. That said, the US has deeper resources and its own currency unlike Greece. And so they can kick the can down the road far longer. And as we're talking, there's a question again of a government shutdown. Well, I think it was Rand Paul who pointed out that the way you get a compromise, you give the Republicans a little bit more defense spending and the Democrats a little bit more on the social security side or entitlements and and everybody lives happily ever after. And so the the big issues that are are not really addressed. I mean Doge with cost cutting efforts is all nice and well, but it doesn't fix the long-term sustainability. And and and maybe it was also the rise of Doge that brought these discussions back into the forefront of people. But I think an increasing number of people realize that politicians want the easy way out. And it's monetary policy has has facilitated that. In in in the US we have micromanaged the economy ever more. Remember we had banks mismanage interest rate risk and the result is well Mr. Powell gives them gives gives them kind of an extension as hey you can work on this a little longer or take France in in Europe. Um they have a big mess with the budget and at the same time Madame Lagard at the ECB says um we will make sure that the ECB transmission mechanism works. Now, that might sound cryptic, but what that means is if the spreads blow out, if French bonds are trading um at at a higher spread versus the German bonds, the ECB will intervene. Meaning, we will take the market pressure away. And so, if you're a politician, why why should you not pursue your agenda as a politician? Why should you do the right thing and and uh fix pension issues and and the like? And so it's been this symbiosis if you call it I think symbiosis means everybody benefits. It's quite the opposite, but it's the it's that dynamic that um ultimately the monetary policy is a slave of of fiscal policy and but they have been egging the the fiscal policy makers on so to speak in in finding new ways and and not addressing the real problems and and so people shall be excused to say well maybe we'll diversify a little bit um into some things and then they look at things and and gold and gold miners are are but one of the benefit beneficiaries as part of that process. So, it sounds like that trend also is not going to change anytime anytime soon. But let's talk about gold's run. This go this record run for gold and um it moved to an all-time high above 3700. It's still still above 3,700 today. It's down a little bit, but who cares? Um it has been a super popular topic on this show and it does make me a little curious. Um because has gold this kind of parabolic move this rise that we've seen has that been surprising at all or is it normal to also see we've also seen stock prices at or near record highs as well? Is that normal? Well, what is normal? Um yeah, that's a good point. The gold is gold is just a rock, a bio relic, right? um using using Kane's words and so the price of gold doesn't change. It is the perception of gold that changes and uh and so gold is is is the one constant there and and so the world evaluates gold differently. The one one way I like to look at gold is that it competes with cash um with long-term cash in the sense that is the purchasing power of ga cash going to get pres preserved and of course nobody knows what the the long-term inflation rate is although there the market metrics of course on that but the reason that's relevant is because that means it's about perception it's about what do people believe will be the case and how tough will be the Federal Reserve be how good will fiscal policy be obviously the concerns about the interference from the executive and monetary policy play a role in that as well and so um and the other thing I mentioned is the gold market is not that huge and and so you don't need much of a change in perception to have significant moves in in in the price of gold. Um the price of gold historically has a volatility similar to that of the equity markets but it has a long history that that can shoot higher and uh if anything I think the more surprising part was that for for quite a while the price of gold was somewhat contained. Um I mentioned earlier that that speculators might take an interest in in gold again that there are signs of that. Historically, people I mean people used to gamble in in gold mining stocks. Um that was before you could gamble in meme stocks and you could gamble in in cryptocurrencies and and so we've had some of those investors come back in recent weeks that mostly increases volatility both to the upside obviously also to the downside at some point. Um is it surprising? I I don't know. I don't think it's surprising because this was bound to happen. Um the most surprising part to me is and uh without getting too much into the weeds on the gold mining side typically what happens is that money flows when it flows into the space it goes into the big miners because it's the easiest to buy the ETFs and then with a delay it goes into the more junior companies often with an amplified effect. And there are various reasons why the gold miners have before this rally had held back because there are lots of problems in my view and and the big miners some of them are behind them. U but the the junior miners haven't had that explosive add-on rally that they often have. Now I must not make a prediction. This is very volatile and whatnot but if history is any guide I wouldn't be surprised if that's still outstanding. Now, there's no assurance that can happen. And by the way, the market has valued the ounce in the ground far more conservatively than in the past. Uh presumably in part because investors have gotten burnt too f too much and so too many times and and so what's been happening is the price of gold has been rising. But on the mining side, we haven't seen really the excesses. Now clearly the funding windows open. A lot of these junior companies need to go back to the funding marks to develop their minds. But overall, if if you think about if you're somebody developing a mine, you can we love it when the price of gold is over 3,700 bucks, but when you develop a mine, you cannot use that as a basis. You cannot say I'm only profitable if the price of gold is there. And so, one of the things we monitor is how are these these assessments change for the base cost that go into the cost of mining? And of course it quote unquote feels better when the price of gold is higher, but they must be able to to execute their business plan at a significantly lower price. Otherwise, they're not going to get access to funding or at least they shouldn't. And if they are, then that would be a sign of the market top. And so there has there's continued to be significant discipline. Um now, how long will that window last? How long will will this positive environment to be there? It's very difficult to say whether that's a few weeks or many years. And as as you alluded to earlier, right, the the quoteunquote risk of of policy makers suddenly getting their act together and and imposing fiscal discipline, that's far away. But in the meantime, of course, you can have dynamics and the gold mining side and the gold side that uh that can be both on the upside and on the downside. Gold keeps setting new all-time highs, but price appreciation isn't the only way to profit from owning gold. Monetary Metals is redefining the future of precious metals investing. Instead of paying to store gold, imagine getting paid to own it. With Monetary Metals, you can earn up to 4% on your gold paid in physical gold. That's right. Your ounces grow each month, not just your paper balance. A yield on gold paid in gold means you're stacking more ounces every single month. And you still benefit if gold's prices rise. You're earning more gold every month. and enjoying potential price appreciation at the same time. Go to monetary-medals.com/jullia to learn more and see how you can start earning 4% on your gold paid in gold. Okay, this is really interesting to me and I to be to be honest um Axel, I don't know anything about gold miners. So, I'm going to ask some pretty basic questions, but um you were talking about like how they need to have this discipline when it comes to I guess how they're thinking about what's valued in the ground. The gold in the ground has to be valued more conservatively. Why is that? I don't know like where I'm going with this exactly. Is that a margin thing? Is that an operating thing? Like why why is that? And can you just kind of maybe frame up like how it even works? Like gold miners, give us like that 101 class like for all beginners. I I'll I'll I'll I'll stay high level. And by the way, I am a highle person. I have a portfolio management team that actually manages our gold mining fund. I'm just a chief investment officer that that chimes in. But I um but let me I I can certainly give you the the the high level. Let me first give you some context. the the historically the gold investor and the gold mining investor are actually very different. The gold min the gold investor is more of a conservative person. Now clearly there's volatility and it's not quote unquote safe in the regulatory sense but the gold mining investor tends to be more the specker later or the investor who wants to get more bang for the buck because if you the the idea is that when the price of gold rises the cost of mining is constant and that's a very theoretical thought and you have a disproportionate gain in the miners and so you have this leverage when you invest in the gold miners. In practice, that hasn't often worked out that way. And big part of the reason is that when the price of gold goes up, other things also tend to eat on the margin aside from the margin expansion of the rising price of gold. Most notably, it's about up to a quarter of the cost of mining is energy. It's very energy intensive to go through the ground. And so when oil prices are are near highs, which has happened in the past quite a bit, margins tend to be compressed. When there's a boom in the industry, workers like to have higher salaries. When there's a boom in the industry, governments want to have higher tax revenue and and they might tax more. And so historically, often things have happened that haven't allowed that that leverage to happen. The other thing that happened um after the financial crisis um there was a lot of pressure by investors for these big miners to increase um the the ounces in the ground. The big miners they they they mine something like 5 million ounces a year. Yet that's that's depleting in the ground. You have to kind of get that back into for for the future um for the future profitability. And so they overinvested at back then and then a bare market came and so then the market told the big miners, hey, get your act together. And so they did. Um, which means they underinvested. They balance sheet looks much better. The flip side of that is that when you have a healthy balance sheet, you have much less leverage to the price of gold. And so then this this was pushed to an extreme that they urgently needed to invest. But even them acquiring these smaller mining companies wouldn't have made too much of a dent. And so these big miners got involved in huge mining projects. They tend to be copper gold projects in jurisdictions that are less stable. So it changes the risk profile. In the meantime, and don't want to talk forever on this, but in the meantime, if you go to the more junior end of the miners, um you're literally on on the exploration side anyway, betting on them on striking gold. And so that that creates a a huge leverage in these makes it extremely risky as well to to invest in those um to to just kind of what we do is we like to these days focus on the developer. So they they've already found the gold but they want to develop a mine. Our view is that the scarcest resource in the space is good management. And by the way they don't really care whether they gold out of the ground or some other commodity. they they they're operators, right? And and so they want to be effectively operating in mine. And in order to do that, you need to there are lots of things including the community relations. Got to have relation to the government. You got to um obviously know what you're doing with regard to the mining itself. And and so what what happens in this industry is not so different from high-tech or any other industry. management teams that are proven tend to attract money because they have a proven ability to execute and um and and say and I I can go more into the dynamics in the space but the risk profile within the mining sector varies quite a bit and the one last thing I say you said I can talk forever right so let me say one more keep going we don't have rules in this show the the the one thing to to note about this sector is that the dispersion of returns in the mining sector is greater than any other sector So, that's a mouthful, but what it says that the returns are all over the place and active management matters. And the other thing I'd like to add is that the ETFs, they can't help fund these junior mining companies that that they're just not equipped for that. So, they tend to be index driven and whatnot. Um, at the same time, when these junior companies are developed, bigger investors come in as they go through stages of their growth. And one of the things we focus on is trying to identify companies that are not just dependent on the price of gold but have other potential catalysts where where they might benefit such as when they added to indices or or or some other things. So I would say it's a fascinating space. It's a highly speculative space. Um and it's a space where because active management has been on the decline that that a lot of people are not paying attention to it. And that's part of the reason why you can have outsized returns when suddenly attention is paid to it. Got it. So just maybe to clarify the lingo here, the junior miners, they're a bit more speculative. Like I just saw like something I just did a quick search. They call them like venture capitalists with hard hats. Um versus like the senior do you call them seniors or majors? The majors the producers and the producers of different sizes. Yes. Well, and and the key thing is, right, if you are a a producing company, you generate cash, right? Whereas, if you're a developer, you actually don't have any revenue because you're digging a hole in the ground. Um, and and so there it's priced based on the anticipation of how well you can execute. And the other thing that happens in this industry is that I mentioned you you you focus on the management teams, right? the moment you start producing gold, you'll have to think about, well, what do you do with the money you generate? Do you return it to shareholders or do you explore? And the the the the one thing you typically do is you you kind of dig holes around the property you already have. But the reason why investors accept that is because ultimately most investors want a good management team to do their job, right? Obviously, you want to have a return of capital to shareholders as well. And some of these companies pay dividends once they start producing. But because it's such a rapidly depleting resource, um you want to reallocate the money and the management team that's been proven often investors trust them to continue doing that that job. The other thing that's different from venture capital is that when a when a software company fails, well, it evaporates. When a mine a developer fails, the gold is still in the ground. And and so what happens often often sometimes is that there's a company that has a plan and for whatever reason it doesn't quite work out and so then a new management team comes in and they raise more capital. Now when you raise more capital it means of course a dilution of existing shareholders. So it it is a it's a it's a it's a fascinating space from that end. And of course if you are if you get diluted you may not be so happy about it but it is it is something that happens in this industry regularly and and somebody else will take that mine. Um and and sometimes it can take decades for somebody else to take that mine on again. And of course at $3,700 mines are more attractive that weren't attractive when not cost efficient and of course some of the the mining technology evolves to make things more effective as well these days. Okay, that is interesting. Um I do want to go back to just gold more broadly. um at the 3,700 level. Um I don't even know what you can share here, but I take it there's still room to run from where you sit. Well, I'm not going to give you a price target. Um and uh but the historically gold is not correlated to anything really in the long run. Um the the big thing that many people may have heard is that to equities the correlation is zero in the long run. um that is correct except it is not always zero. It tends to morph in and out. Sometimes positively correlated, sometimes negatively correlated. And by the way, to just contrast that with with crypto, uh Bitcoin has been quite correlated with risk assets with the S&P 500. And and so um in recent days, maybe one should say it hasn't been so much. And if anything, if that were to persist, that's a sign of of of maturing in that space. Um the the one thing that that gold historically had been and I I I potentially say had had been correlated is real yields like that the tips yield the long-term real yield and it is this notion that I I touched on earlier is whether your purchasing power is preserved but even that correlation has broken down and I time that with the weaponization of the dollar once the dollar was used as a sanctions tool. Other countries that may not be all that friendly to the US decided to reassess of where they keep their reserves. And it doesn't mean they dump all the dollar reserves uh tomorrow, but it does change the underlying dynamics and gold is a a beneficiary of this diversification trend of of of central banks and and and other actors in in that space. And so to go back to kind of where where this is going to quote unquote end up for the price of gold. Well, there is no no final date where this going to be. What I do know is that we are in an easing environment of the Federal Reserve that's historically a positive a tailwind. Um but at the same time, right, I mean we've had a tremendous runup and if we if we had a correction, uh that would be a sign. Um, they to give you a sign of a top. I was invited to speak at one of the the quoteunquote mainstream TV channels the other day. They asked me that same question and I said, "The most negative I have to say about the price of gold is that you invited me to the show." Um, and I miss that. That's funny. And and and so it's a I don't have a crystal ball. For investors, I think they should think about risks, the risk they can afford. And anything that goes up as much as gold has, you got to be able to take into account the risk that it could also go down. Um, even though I'm maybe institutionally biased positively, I own both substantial gold and gold miners, but um, you've got to be able to afford the risk, right? Um, and unfortunately, one of the biggest drivers of the price of gold is the price of gold. When it goes up, it attracts other investors. Mhm. I want to go back to something you said early on in the conversation and that was around monetary policy and this kind of notion that we we've now turned I guess a Fed to micromanaging the economy. Could you expand on the significance of that trend? Yes, it's horrible. Um that's the short of it. There's a book that Bernanki wrote, a former fetch chair during a financial crisis and it's it's quite the torture to read, but I I sacrificed myself and I I went through it. You give us the recap. Yeah. Yes. Well, let me the the plain English version that that um that I think everybody has heard is that the Federal Reserve talks about its toolkit, right? The specialist crisis toolkit and toolkit means micromanagement. And to take a step back because I think that gets lost. The role of a central bank is to focus on monetary policy. Monetary policy is about the amount of credit in the economy. It is about the interest rates in the economy. It's about inflation. It is not about favoring one part of the economy over the other. That is fiscal policy, right? You if you and if you step onto fiscal policy as an unelected official, guess what? Elected officials will take note and interfere with what you have to say. I have a lot of problem with the sort of interference that's happening at the Fed. But the root causes of that is that the Federal Reserve has veered away from monetary policy and and and so I'm a purist in that. um when so I even say that when the Federal Reserve buys mortgage back securities that's inappropriate because mortgage back securities favors the mortgage sector. Um of course everybody remembers that the Federal Reserve during the pandemic has has helped to to micromanage things and the and and and the bailing out banks is is of course a big no no. If if that bailout had not happened almost certainly I think we would have had a recession. And so this recession that never came is in part because the Federal Reserve is is is ever more micromanaging that. And the reason why I mentioned Bernankey's writings is because he considers that a feature rather than a bug, right? He thinks that's a good thing. And the problem you have aside from the political meddling that's just escalating and at some point the the politicians Congress will realize that hey they can just use the Fed to do any sort of spending because they they can just create money out of thin air is that when you micromanage the economy it creates an inefficient capital allocation and the less efficient that is it may favor big companies but it prevents the creation of new business. It creates it increases the barrier to entry. Um, and of course it's more than monetary policy. I it's actually one of the reason I don't like terrorists either is because those that scream the loudest um get exemptions where small business doesn't have a voice. And so the more we move in that direction, the less dynamic an economy becomes. And uh that's a problem in the medium term. In other words, is that I guess the um from Bernanki's book and I didn't read it either is the Fed kind of maybe views it as a role to step in and like prevent a recession because it makes me wonder Axel like isn't that what shouldn't we have some recessions and wash some of this stuff out? Yes, but of course that goes to the heart of why there's a Federal Reserve in the first place. Um the economic booms and busts used to be far more severe and uh then President Wilson in uh the 1910s introduced the Federal Reserve to manage the business cycle. And so and the benign view of that is oh you just want to dampen the cycle. You don't want to have depressions. Depressions used to be uh far more more frequent. the and and and and and and so the the other side of that is well can you prevent them alto together and and so the the masters of the universe it's one term for the the folks at at central banks they some of them believe they can actually prevent recessions it it it's not possible but of course there are all these side effects right if you believe the Federal Reserve is going to make prevent anything bad it's it's like this put option that that nothing can go wrong and so forth and and and of course put option can be much more specific than that. But um we know the the other thing of course that has happened since the financial crisis. We know the playbook. we know the playbook when something goes wrong and uh and so this these markets are discount mechanisms and say one of the one of the things that happens oh we might have a recession and then gold might go up before the rates are cut um because we we know what the Fed is going to do right and and so and this is in stark contrast to to what there used to be right it used to be especially before the Federal Reserve existed that there was a less fair attitude and uh well yeah there's growth you You need to have a correction and you need to have clear things out. It goes way beyond though just the the cryptic things about monetary policy and and and purchasing power. I don't need to surprise anybody. There's no surprise anybody when I tell people that it has political implications. People feel like something is wrong. After the financial crisis, people felt cheated. Why are these big guys getting bailed out and and we don't get a bailout and this and that? And because monetary policy is complicated, they can't put their finger on it. But it it it promotes the rise of populism both on the left and on the right. Not just in the US, of course, in other countries as well. And it unleashes an unstable dynamic, right? And of course, here we are today. One thing I tell people is that who don't like the politics of the day, they're just a symptom of the day, right? It's not like if if you don't like uh President Trump, well, wait, who's next? Right. Um and I'm it can be on the left or on the right because the the solutions that are being proposed will sound easy, but they in the absence of fiscal discipline, none of this this will work. and and it's just that it it encourages populist moves and they might they might get votes but ultimately for for long-term growth for long-term prosperity a lot of these things are are harmful. Now that said um a populist like President Trump is he he also favors deregulation. So there are things that can be very positive in in all this context. Um, but it's a if you if the underlying foundation on the fiscal side is is deteriorating, then the the the medium-term trajectory is is very troublesome. And it's it's one of the reasons why Ray Dalio and others are increasingly telling people consider having a gold allocation in your portfolio because I I don't know where the price of gold is going to be tomorrow, but in in 20 years, I'm I think I'd like to have had gold in my portfolio. And it it's one of the things about gold anyway that it's something you're usually glad you had it with hindsight and never quite know why you would have it for tomorrow because it it's not a productive asset. Yeah, I hear you on that one. I I I told this audience like I uh won some money in college from like some entrepreneurship stuff. I put it all in gold in 2011 and I just forgot about it and I didn't touch it. I still haven't even touched it, but I opened my statement and I was like, hm, I probably didn't like it around 2011, 2012, and thereabouts, but I like it now. Um, can I ask you one more question before we have to run? Is that okay? Sure. Okay. We've talked about gold. If I do not bring up silver with you, I will definitely get comments. So, um, what's your thought on silver? Yeah. So, I tried to keep this simple. That's why I focused on gold. Silver gets much more complicated. And the reason is that silver has extensive industrial use. And also if you if you've never had a gold bar and a silver bar in your hand, well try to get your hands on one. Um silver is an ounce of silver is currently as we speak 44 bucks whereas an ounce of gold is over $3,700. And so in order to invest $1,000, a million dollars, whatever you you might want to choose it, the volume is just much higher. Just I want people to visualize that because it it matters also for for storage purposes if it's more than than a few bucks that you you put in there. Um but because it has that industrial component, it is notoriously more volatile because the the one way to interpret why price of silver has gone up is because the the odds of a recession have been maybe a bit more muted of late. And that doesn't mean we might not get one. But when you have a more severe recession, you tend to have the equity markets fall down. you tend to have the federal because of the identity of the Federal Reserve take more draconian action and that benefits gold. Now silver on the one hand would like to benefit because of lower rates. On the other hand, it gets held back because of more severe recession. And so when you have a more benign recession, equity markets as a discounting mechanism, they could do just fine. And I'm not making a prediction of how things will play out. I'm just talking here abstractly. and and and silver when assuming that that interest rates are are going lower can can benefit. And so it is the thing though that let's have some very bad economic data come out and there will be some numbers coming in above expected below expected what not and so it is quite possible that silver sells off and and gold goes up and so it is it is something that that is is much more volatile than the price of gold. Um the reasons of course why silver should go up versus and gold are of course the same in more broadly speaking um timing either gold or silver is an incredibly difficult exercise and as as you may have heard a lot of what I tell you are kind of long-term things and I I trust you sometimes have technicians on the air they'll give you some short-term ideas. One of the reasons why the why why technical analysis in gold may work better than than in other assets is because of the lack of industrial use because gold doesn't have so many other users. It attracts a lot of technical traders and that can become a self-fulfilling prophecy. And so uh and the one thing I I tell people before I wrap it up is um the important thing is that investors have an investment process. It doesn't need to be the best one, but having no process is a sure way to lose money. And so it can be fundamental, it can be technical, uh, but have a reason why you buy something. And notably, when you buy something, think about when you might want to sell something as well. That's so well put, Axel Murk, CIO of MC Investments. Before I let you go, let folks know where they can learn more about the work that you all are doing at Merc Investments. I know you can't talk products, but you can let them know at least where to go, where to find you on social, and any parting thoughts, anything that you'd like to leave this audience to think about. The floor is all yours. Mercinest.com is our website. There is a free newsletter. You can get from there to to what we do in the gold and and gold mining space. I am on Twitter. I still call it Twitter, Axelmmer. Uh and uh I tend to focus on monetary policy, anything else that might might focus on the economy. The one thing I like to mention in an interview like this is that the the one best investment advice I can give is to invest in yourself. Um you are a fixed income generating machine. It's one of the reasons why young investors can are set to be able to tolerate more risk. Um which also means invest in your health because then this fixed income generating machine can can can produce longer. And the the other at the other end of the spectrum aside from the income side on the spending side that is the one thing you can control. You can control your spending within reason. Obviously certain expenses you can't control but in in an uncertain world keep an eye on your expenses and that is far more important than whether you buy this hot stock or this value stock or this or that. Um, it's a it's risk is what you can sleep with at night. And as a gold investor, I don't mean how much gold you can have under your pillow. I mean, if you lose your sleep over your investments, it means you're overexposed. And that is a far better indicator than than variances or other mathematical statistics. Axel MK, founder and CIO of Merc investments. Thank you so much for being so generous with your time, all of your knowledge, your wisdom, helping us all learn and get better, and for being a friend of this show. really appreciate you taking the time, Axel.
Axel Merk: Fed Preventing Recessions Creates Bigger Problems – Why Gold Recognizes This
Summary
Transcript
Ultimately, the monetary policy is a slave of of fiscal policy and but they have been egging the the fiscal policy makers on so to speak in in finding new ways in in not addressing the real problems and and so people shall be excused to say well maybe we'll diversify a little bit um into some things and then they look at things and and gold and gold miners are are but one of the beneficiaries as part of that process. Axel Murk, CIO of Merc Investments, a friend of this show, one of the earliest guests on this show, I should note. It is so great to welcome you back. It's been exactly 6 months since our last conversation. There is so much interest in having you on the show in particular. And I was just looking the last time you and I spoke exactly 6 months ago, you had about two billion in AUM and you are just really close now to three billion in AUM. So I think it's a signal of the interest of what is happening in the world in which you operate. Great to welcome you back on the show. Great to see you as always, Axel. I appreciate you. Great to be with you. It feels much longer. And for those who don't know me, our focus is gold and gold miners and the reflection and increase in assets under management to a significant extent reflects the interest that investors have taken on in the space. And one of the reasons I wanted you on this show is because I in side conversations people keep asking about the gold miners and I was like hm I know someone who's an expert in this space that I would love to get on but before we even get into the gold miners and what's happening in gold. Let's start where we always start and like you said it feels like it's been a lot longer than 6 months. But let's just kind of frame things up with the big picture macro view. You are an expert on those macro trends. So, where we are today, where you see things headed, what is on your radar, what are you paying attention to? And Axel, as you know, on the show, you can take all the time you need to set the table. Given that we talked 6 months ago, this was before quote unquote liberation day. And I may have touched on it then because I did actually publish a an article on this before liberation day. When you have tariffs, you're not just impacting the flow of goods, you're impacting financial flows. And uh it's an angle I like to emphasize because I don't think it's it's mentioned enough. when you pretty much throw a wrench into the so-called exorbitant privilege. Um, it's not that you're destroying it with tariffs, but what happens is that this machinery called the US where you borrow cheaply to invest in higher returns abroad um gets rattled and it increases the borrowing cost. Notably, long-term rates go higher and then of course that means that deficits have to be financed more domestically. And uh in the absence of fiscal discipline, pressure increases on the Federal Reserve. And guess what? That's exactly what's been playing out. And so I mentioned that as a framework of of where we are and all of this what what this has led to that a lot of the views that that we have discussed over the years and have moved more from the fringe as a as a kind of remote risk scenario more towards the mainstream and to just tie it to the market the gold and gold mining market where where we are active in because that market isn't all that huge it can have an outsized impact on the returns. Now, uh obviously the broader context is that asset valuations are are somewhat elevated, that the Federal Reserve is on easing trend despite still having inflationary pressures. So, there's a lot of other drivers here and and ultimately we're always trying to fit a macro story onto what's happening in the markets. The markets move because of supply and demand and and then we like to put a nice story to it. um it just happens to be that the story has been panning out as um as feared or anticipated depending on on how you are invested and how you stand on these topics. Yeah, it's an interesting point you make about you know kind of moving from the fringe and moving toward more of the mainstream. Would you mind just elaborating a little bit more on that idea? Well, to to just take our space, right, the investors we see are the the folks concerned about the purchasing power of the dollar, the gold bugs or anybody else and that sort. So, that's what I'm referring to. Other investors are diversification investors, speculators, th those have always been around and yes, they have a greater interest, especially when the price of gold moves up, then speculators might be moving from meme stocks and crypto more back to gold. they're not very loyal, but the the investor I'm referring to is really the one that's concerned about the long-term fiscal sustainability. And of course, that's a theme that's been around for decades. It's always a problem for tomorrow. And the one thing we do know is that policy makers only get their act together when the market pushes them to get their act together. That said, the US has deeper resources and its own currency unlike Greece. And so they can kick the can down the road far longer. And as we're talking, there's a question again of a government shutdown. Well, I think it was Rand Paul who pointed out that the way you get a compromise, you give the Republicans a little bit more defense spending and the Democrats a little bit more on the social security side or entitlements and and everybody lives happily ever after. And so the the big issues that are are not really addressed. I mean Doge with cost cutting efforts is all nice and well, but it doesn't fix the long-term sustainability. And and and maybe it was also the rise of Doge that brought these discussions back into the forefront of people. But I think an increasing number of people realize that politicians want the easy way out. And it's monetary policy has has facilitated that. In in in the US we have micromanaged the economy ever more. Remember we had banks mismanage interest rate risk and the result is well Mr. Powell gives them gives gives them kind of an extension as hey you can work on this a little longer or take France in in Europe. Um they have a big mess with the budget and at the same time Madame Lagard at the ECB says um we will make sure that the ECB transmission mechanism works. Now, that might sound cryptic, but what that means is if the spreads blow out, if French bonds are trading um at at a higher spread versus the German bonds, the ECB will intervene. Meaning, we will take the market pressure away. And so, if you're a politician, why why should you not pursue your agenda as a politician? Why should you do the right thing and and uh fix pension issues and and the like? And so it's been this symbiosis if you call it I think symbiosis means everybody benefits. It's quite the opposite, but it's the it's that dynamic that um ultimately the monetary policy is a slave of of fiscal policy and but they have been egging the the fiscal policy makers on so to speak in in finding new ways and and not addressing the real problems and and so people shall be excused to say well maybe we'll diversify a little bit um into some things and then they look at things and and gold and gold miners are are but one of the benefit beneficiaries as part of that process. So, it sounds like that trend also is not going to change anytime anytime soon. But let's talk about gold's run. This go this record run for gold and um it moved to an all-time high above 3700. It's still still above 3,700 today. It's down a little bit, but who cares? Um it has been a super popular topic on this show and it does make me a little curious. Um because has gold this kind of parabolic move this rise that we've seen has that been surprising at all or is it normal to also see we've also seen stock prices at or near record highs as well? Is that normal? Well, what is normal? Um yeah, that's a good point. The gold is gold is just a rock, a bio relic, right? um using using Kane's words and so the price of gold doesn't change. It is the perception of gold that changes and uh and so gold is is is the one constant there and and so the world evaluates gold differently. The one one way I like to look at gold is that it competes with cash um with long-term cash in the sense that is the purchasing power of ga cash going to get pres preserved and of course nobody knows what the the long-term inflation rate is although there the market metrics of course on that but the reason that's relevant is because that means it's about perception it's about what do people believe will be the case and how tough will be the Federal Reserve be how good will fiscal policy be obviously the concerns about the interference from the executive and monetary policy play a role in that as well and so um and the other thing I mentioned is the gold market is not that huge and and so you don't need much of a change in perception to have significant moves in in in the price of gold. Um the price of gold historically has a volatility similar to that of the equity markets but it has a long history that that can shoot higher and uh if anything I think the more surprising part was that for for quite a while the price of gold was somewhat contained. Um I mentioned earlier that that speculators might take an interest in in gold again that there are signs of that. Historically, people I mean people used to gamble in in gold mining stocks. Um that was before you could gamble in meme stocks and you could gamble in in cryptocurrencies and and so we've had some of those investors come back in recent weeks that mostly increases volatility both to the upside obviously also to the downside at some point. Um is it surprising? I I don't know. I don't think it's surprising because this was bound to happen. Um the most surprising part to me is and uh without getting too much into the weeds on the gold mining side typically what happens is that money flows when it flows into the space it goes into the big miners because it's the easiest to buy the ETFs and then with a delay it goes into the more junior companies often with an amplified effect. And there are various reasons why the gold miners have before this rally had held back because there are lots of problems in my view and and the big miners some of them are behind them. U but the the junior miners haven't had that explosive add-on rally that they often have. Now I must not make a prediction. This is very volatile and whatnot but if history is any guide I wouldn't be surprised if that's still outstanding. Now, there's no assurance that can happen. And by the way, the market has valued the ounce in the ground far more conservatively than in the past. Uh presumably in part because investors have gotten burnt too f too much and so too many times and and so what's been happening is the price of gold has been rising. But on the mining side, we haven't seen really the excesses. Now clearly the funding windows open. A lot of these junior companies need to go back to the funding marks to develop their minds. But overall, if if you think about if you're somebody developing a mine, you can we love it when the price of gold is over 3,700 bucks, but when you develop a mine, you cannot use that as a basis. You cannot say I'm only profitable if the price of gold is there. And so, one of the things we monitor is how are these these assessments change for the base cost that go into the cost of mining? And of course it quote unquote feels better when the price of gold is higher, but they must be able to to execute their business plan at a significantly lower price. Otherwise, they're not going to get access to funding or at least they shouldn't. And if they are, then that would be a sign of the market top. And so there has there's continued to be significant discipline. Um now, how long will that window last? How long will will this positive environment to be there? It's very difficult to say whether that's a few weeks or many years. And as as you alluded to earlier, right, the the quoteunquote risk of of policy makers suddenly getting their act together and and imposing fiscal discipline, that's far away. But in the meantime, of course, you can have dynamics and the gold mining side and the gold side that uh that can be both on the upside and on the downside. Gold keeps setting new all-time highs, but price appreciation isn't the only way to profit from owning gold. Monetary Metals is redefining the future of precious metals investing. Instead of paying to store gold, imagine getting paid to own it. With Monetary Metals, you can earn up to 4% on your gold paid in physical gold. That's right. Your ounces grow each month, not just your paper balance. A yield on gold paid in gold means you're stacking more ounces every single month. And you still benefit if gold's prices rise. You're earning more gold every month. and enjoying potential price appreciation at the same time. Go to monetary-medals.com/jullia to learn more and see how you can start earning 4% on your gold paid in gold. Okay, this is really interesting to me and I to be to be honest um Axel, I don't know anything about gold miners. So, I'm going to ask some pretty basic questions, but um you were talking about like how they need to have this discipline when it comes to I guess how they're thinking about what's valued in the ground. The gold in the ground has to be valued more conservatively. Why is that? I don't know like where I'm going with this exactly. Is that a margin thing? Is that an operating thing? Like why why is that? And can you just kind of maybe frame up like how it even works? Like gold miners, give us like that 101 class like for all beginners. I I'll I'll I'll I'll stay high level. And by the way, I am a highle person. I have a portfolio management team that actually manages our gold mining fund. I'm just a chief investment officer that that chimes in. But I um but let me I I can certainly give you the the the high level. Let me first give you some context. the the historically the gold investor and the gold mining investor are actually very different. The gold min the gold investor is more of a conservative person. Now clearly there's volatility and it's not quote unquote safe in the regulatory sense but the gold mining investor tends to be more the specker later or the investor who wants to get more bang for the buck because if you the the idea is that when the price of gold rises the cost of mining is constant and that's a very theoretical thought and you have a disproportionate gain in the miners and so you have this leverage when you invest in the gold miners. In practice, that hasn't often worked out that way. And big part of the reason is that when the price of gold goes up, other things also tend to eat on the margin aside from the margin expansion of the rising price of gold. Most notably, it's about up to a quarter of the cost of mining is energy. It's very energy intensive to go through the ground. And so when oil prices are are near highs, which has happened in the past quite a bit, margins tend to be compressed. When there's a boom in the industry, workers like to have higher salaries. When there's a boom in the industry, governments want to have higher tax revenue and and they might tax more. And so historically, often things have happened that haven't allowed that that leverage to happen. The other thing that happened um after the financial crisis um there was a lot of pressure by investors for these big miners to increase um the the ounces in the ground. The big miners they they they mine something like 5 million ounces a year. Yet that's that's depleting in the ground. You have to kind of get that back into for for the future um for the future profitability. And so they overinvested at back then and then a bare market came and so then the market told the big miners, hey, get your act together. And so they did. Um, which means they underinvested. They balance sheet looks much better. The flip side of that is that when you have a healthy balance sheet, you have much less leverage to the price of gold. And so then this this was pushed to an extreme that they urgently needed to invest. But even them acquiring these smaller mining companies wouldn't have made too much of a dent. And so these big miners got involved in huge mining projects. They tend to be copper gold projects in jurisdictions that are less stable. So it changes the risk profile. In the meantime, and don't want to talk forever on this, but in the meantime, if you go to the more junior end of the miners, um you're literally on on the exploration side anyway, betting on them on striking gold. And so that that creates a a huge leverage in these makes it extremely risky as well to to invest in those um to to just kind of what we do is we like to these days focus on the developer. So they they've already found the gold but they want to develop a mine. Our view is that the scarcest resource in the space is good management. And by the way they don't really care whether they gold out of the ground or some other commodity. they they they're operators, right? And and so they want to be effectively operating in mine. And in order to do that, you need to there are lots of things including the community relations. Got to have relation to the government. You got to um obviously know what you're doing with regard to the mining itself. And and so what what happens in this industry is not so different from high-tech or any other industry. management teams that are proven tend to attract money because they have a proven ability to execute and um and and say and I I can go more into the dynamics in the space but the risk profile within the mining sector varies quite a bit and the one last thing I say you said I can talk forever right so let me say one more keep going we don't have rules in this show the the the one thing to to note about this sector is that the dispersion of returns in the mining sector is greater than any other sector So, that's a mouthful, but what it says that the returns are all over the place and active management matters. And the other thing I'd like to add is that the ETFs, they can't help fund these junior mining companies that that they're just not equipped for that. So, they tend to be index driven and whatnot. Um, at the same time, when these junior companies are developed, bigger investors come in as they go through stages of their growth. And one of the things we focus on is trying to identify companies that are not just dependent on the price of gold but have other potential catalysts where where they might benefit such as when they added to indices or or or some other things. So I would say it's a fascinating space. It's a highly speculative space. Um and it's a space where because active management has been on the decline that that a lot of people are not paying attention to it. And that's part of the reason why you can have outsized returns when suddenly attention is paid to it. Got it. So just maybe to clarify the lingo here, the junior miners, they're a bit more speculative. Like I just saw like something I just did a quick search. They call them like venture capitalists with hard hats. Um versus like the senior do you call them seniors or majors? The majors the producers and the producers of different sizes. Yes. Well, and and the key thing is, right, if you are a a producing company, you generate cash, right? Whereas, if you're a developer, you actually don't have any revenue because you're digging a hole in the ground. Um, and and so there it's priced based on the anticipation of how well you can execute. And the other thing that happens in this industry is that I mentioned you you you focus on the management teams, right? the moment you start producing gold, you'll have to think about, well, what do you do with the money you generate? Do you return it to shareholders or do you explore? And the the the the one thing you typically do is you you kind of dig holes around the property you already have. But the reason why investors accept that is because ultimately most investors want a good management team to do their job, right? Obviously, you want to have a return of capital to shareholders as well. And some of these companies pay dividends once they start producing. But because it's such a rapidly depleting resource, um you want to reallocate the money and the management team that's been proven often investors trust them to continue doing that that job. The other thing that's different from venture capital is that when a when a software company fails, well, it evaporates. When a mine a developer fails, the gold is still in the ground. And and so what happens often often sometimes is that there's a company that has a plan and for whatever reason it doesn't quite work out and so then a new management team comes in and they raise more capital. Now when you raise more capital it means of course a dilution of existing shareholders. So it it is a it's a it's a it's a fascinating space from that end. And of course if you are if you get diluted you may not be so happy about it but it is it is something that happens in this industry regularly and and somebody else will take that mine. Um and and sometimes it can take decades for somebody else to take that mine on again. And of course at $3,700 mines are more attractive that weren't attractive when not cost efficient and of course some of the the mining technology evolves to make things more effective as well these days. Okay, that is interesting. Um I do want to go back to just gold more broadly. um at the 3,700 level. Um I don't even know what you can share here, but I take it there's still room to run from where you sit. Well, I'm not going to give you a price target. Um and uh but the historically gold is not correlated to anything really in the long run. Um the the big thing that many people may have heard is that to equities the correlation is zero in the long run. um that is correct except it is not always zero. It tends to morph in and out. Sometimes positively correlated, sometimes negatively correlated. And by the way, to just contrast that with with crypto, uh Bitcoin has been quite correlated with risk assets with the S&P 500. And and so um in recent days, maybe one should say it hasn't been so much. And if anything, if that were to persist, that's a sign of of of maturing in that space. Um the the one thing that that gold historically had been and I I I potentially say had had been correlated is real yields like that the tips yield the long-term real yield and it is this notion that I I touched on earlier is whether your purchasing power is preserved but even that correlation has broken down and I time that with the weaponization of the dollar once the dollar was used as a sanctions tool. Other countries that may not be all that friendly to the US decided to reassess of where they keep their reserves. And it doesn't mean they dump all the dollar reserves uh tomorrow, but it does change the underlying dynamics and gold is a a beneficiary of this diversification trend of of of central banks and and and other actors in in that space. And so to go back to kind of where where this is going to quote unquote end up for the price of gold. Well, there is no no final date where this going to be. What I do know is that we are in an easing environment of the Federal Reserve that's historically a positive a tailwind. Um but at the same time, right, I mean we've had a tremendous runup and if we if we had a correction, uh that would be a sign. Um, they to give you a sign of a top. I was invited to speak at one of the the quoteunquote mainstream TV channels the other day. They asked me that same question and I said, "The most negative I have to say about the price of gold is that you invited me to the show." Um, and I miss that. That's funny. And and and so it's a I don't have a crystal ball. For investors, I think they should think about risks, the risk they can afford. And anything that goes up as much as gold has, you got to be able to take into account the risk that it could also go down. Um, even though I'm maybe institutionally biased positively, I own both substantial gold and gold miners, but um, you've got to be able to afford the risk, right? Um, and unfortunately, one of the biggest drivers of the price of gold is the price of gold. When it goes up, it attracts other investors. Mhm. I want to go back to something you said early on in the conversation and that was around monetary policy and this kind of notion that we we've now turned I guess a Fed to micromanaging the economy. Could you expand on the significance of that trend? Yes, it's horrible. Um that's the short of it. There's a book that Bernanki wrote, a former fetch chair during a financial crisis and it's it's quite the torture to read, but I I sacrificed myself and I I went through it. You give us the recap. Yeah. Yes. Well, let me the the plain English version that that um that I think everybody has heard is that the Federal Reserve talks about its toolkit, right? The specialist crisis toolkit and toolkit means micromanagement. And to take a step back because I think that gets lost. The role of a central bank is to focus on monetary policy. Monetary policy is about the amount of credit in the economy. It is about the interest rates in the economy. It's about inflation. It is not about favoring one part of the economy over the other. That is fiscal policy, right? You if you and if you step onto fiscal policy as an unelected official, guess what? Elected officials will take note and interfere with what you have to say. I have a lot of problem with the sort of interference that's happening at the Fed. But the root causes of that is that the Federal Reserve has veered away from monetary policy and and and so I'm a purist in that. um when so I even say that when the Federal Reserve buys mortgage back securities that's inappropriate because mortgage back securities favors the mortgage sector. Um of course everybody remembers that the Federal Reserve during the pandemic has has helped to to micromanage things and the and and and the bailing out banks is is of course a big no no. If if that bailout had not happened almost certainly I think we would have had a recession. And so this recession that never came is in part because the Federal Reserve is is is ever more micromanaging that. And the reason why I mentioned Bernankey's writings is because he considers that a feature rather than a bug, right? He thinks that's a good thing. And the problem you have aside from the political meddling that's just escalating and at some point the the politicians Congress will realize that hey they can just use the Fed to do any sort of spending because they they can just create money out of thin air is that when you micromanage the economy it creates an inefficient capital allocation and the less efficient that is it may favor big companies but it prevents the creation of new business. It creates it increases the barrier to entry. Um, and of course it's more than monetary policy. I it's actually one of the reason I don't like terrorists either is because those that scream the loudest um get exemptions where small business doesn't have a voice. And so the more we move in that direction, the less dynamic an economy becomes. And uh that's a problem in the medium term. In other words, is that I guess the um from Bernanki's book and I didn't read it either is the Fed kind of maybe views it as a role to step in and like prevent a recession because it makes me wonder Axel like isn't that what shouldn't we have some recessions and wash some of this stuff out? Yes, but of course that goes to the heart of why there's a Federal Reserve in the first place. Um the economic booms and busts used to be far more severe and uh then President Wilson in uh the 1910s introduced the Federal Reserve to manage the business cycle. And so and the benign view of that is oh you just want to dampen the cycle. You don't want to have depressions. Depressions used to be uh far more more frequent. the and and and and and and so the the other side of that is well can you prevent them alto together and and so the the masters of the universe it's one term for the the folks at at central banks they some of them believe they can actually prevent recessions it it it's not possible but of course there are all these side effects right if you believe the Federal Reserve is going to make prevent anything bad it's it's like this put option that that nothing can go wrong and so forth and and and of course put option can be much more specific than that. But um we know the the other thing of course that has happened since the financial crisis. We know the playbook. we know the playbook when something goes wrong and uh and so this these markets are discount mechanisms and say one of the one of the things that happens oh we might have a recession and then gold might go up before the rates are cut um because we we know what the Fed is going to do right and and so and this is in stark contrast to to what there used to be right it used to be especially before the Federal Reserve existed that there was a less fair attitude and uh well yeah there's growth you You need to have a correction and you need to have clear things out. It goes way beyond though just the the cryptic things about monetary policy and and and purchasing power. I don't need to surprise anybody. There's no surprise anybody when I tell people that it has political implications. People feel like something is wrong. After the financial crisis, people felt cheated. Why are these big guys getting bailed out and and we don't get a bailout and this and that? And because monetary policy is complicated, they can't put their finger on it. But it it it promotes the rise of populism both on the left and on the right. Not just in the US, of course, in other countries as well. And it unleashes an unstable dynamic, right? And of course, here we are today. One thing I tell people is that who don't like the politics of the day, they're just a symptom of the day, right? It's not like if if you don't like uh President Trump, well, wait, who's next? Right. Um and I'm it can be on the left or on the right because the the solutions that are being proposed will sound easy, but they in the absence of fiscal discipline, none of this this will work. and and it's just that it it encourages populist moves and they might they might get votes but ultimately for for long-term growth for long-term prosperity a lot of these things are are harmful. Now that said um a populist like President Trump is he he also favors deregulation. So there are things that can be very positive in in all this context. Um, but it's a if you if the underlying foundation on the fiscal side is is deteriorating, then the the the medium-term trajectory is is very troublesome. And it's it's one of the reasons why Ray Dalio and others are increasingly telling people consider having a gold allocation in your portfolio because I I don't know where the price of gold is going to be tomorrow, but in in 20 years, I'm I think I'd like to have had gold in my portfolio. And it it's one of the things about gold anyway that it's something you're usually glad you had it with hindsight and never quite know why you would have it for tomorrow because it it's not a productive asset. Yeah, I hear you on that one. I I I told this audience like I uh won some money in college from like some entrepreneurship stuff. I put it all in gold in 2011 and I just forgot about it and I didn't touch it. I still haven't even touched it, but I opened my statement and I was like, hm, I probably didn't like it around 2011, 2012, and thereabouts, but I like it now. Um, can I ask you one more question before we have to run? Is that okay? Sure. Okay. We've talked about gold. If I do not bring up silver with you, I will definitely get comments. So, um, what's your thought on silver? Yeah. So, I tried to keep this simple. That's why I focused on gold. Silver gets much more complicated. And the reason is that silver has extensive industrial use. And also if you if you've never had a gold bar and a silver bar in your hand, well try to get your hands on one. Um silver is an ounce of silver is currently as we speak 44 bucks whereas an ounce of gold is over $3,700. And so in order to invest $1,000, a million dollars, whatever you you might want to choose it, the volume is just much higher. Just I want people to visualize that because it it matters also for for storage purposes if it's more than than a few bucks that you you put in there. Um but because it has that industrial component, it is notoriously more volatile because the the one way to interpret why price of silver has gone up is because the the odds of a recession have been maybe a bit more muted of late. And that doesn't mean we might not get one. But when you have a more severe recession, you tend to have the equity markets fall down. you tend to have the federal because of the identity of the Federal Reserve take more draconian action and that benefits gold. Now silver on the one hand would like to benefit because of lower rates. On the other hand, it gets held back because of more severe recession. And so when you have a more benign recession, equity markets as a discounting mechanism, they could do just fine. And I'm not making a prediction of how things will play out. I'm just talking here abstractly. and and and silver when assuming that that interest rates are are going lower can can benefit. And so it is the thing though that let's have some very bad economic data come out and there will be some numbers coming in above expected below expected what not and so it is quite possible that silver sells off and and gold goes up and so it is it is something that that is is much more volatile than the price of gold. Um the reasons of course why silver should go up versus and gold are of course the same in more broadly speaking um timing either gold or silver is an incredibly difficult exercise and as as you may have heard a lot of what I tell you are kind of long-term things and I I trust you sometimes have technicians on the air they'll give you some short-term ideas. One of the reasons why the why why technical analysis in gold may work better than than in other assets is because of the lack of industrial use because gold doesn't have so many other users. It attracts a lot of technical traders and that can become a self-fulfilling prophecy. And so uh and the one thing I I tell people before I wrap it up is um the important thing is that investors have an investment process. It doesn't need to be the best one, but having no process is a sure way to lose money. And so it can be fundamental, it can be technical, uh, but have a reason why you buy something. And notably, when you buy something, think about when you might want to sell something as well. That's so well put, Axel Murk, CIO of MC Investments. Before I let you go, let folks know where they can learn more about the work that you all are doing at Merc Investments. I know you can't talk products, but you can let them know at least where to go, where to find you on social, and any parting thoughts, anything that you'd like to leave this audience to think about. The floor is all yours. Mercinest.com is our website. There is a free newsletter. You can get from there to to what we do in the gold and and gold mining space. I am on Twitter. I still call it Twitter, Axelmmer. Uh and uh I tend to focus on monetary policy, anything else that might might focus on the economy. The one thing I like to mention in an interview like this is that the the one best investment advice I can give is to invest in yourself. Um you are a fixed income generating machine. It's one of the reasons why young investors can are set to be able to tolerate more risk. Um which also means invest in your health because then this fixed income generating machine can can can produce longer. And the the other at the other end of the spectrum aside from the income side on the spending side that is the one thing you can control. You can control your spending within reason. Obviously certain expenses you can't control but in in an uncertain world keep an eye on your expenses and that is far more important than whether you buy this hot stock or this value stock or this or that. Um, it's a it's risk is what you can sleep with at night. And as a gold investor, I don't mean how much gold you can have under your pillow. I mean, if you lose your sleep over your investments, it means you're overexposed. And that is a far better indicator than than variances or other mathematical statistics. Axel MK, founder and CIO of Merc investments. Thank you so much for being so generous with your time, all of your knowledge, your wisdom, helping us all learn and get better, and for being a friend of this show. really appreciate you taking the time, Axel.