Market News Experts warn of the threat of stagflation, gold is still an important stable asset!
Experts warn of the threat of stagflation, gold is still an important stable asset!
Axel Merk, president and chief investment officer of Merk Investments, said he likes gold as a portfolio stabilizer.
2022-05-27
12086
The Federal Reserve has reaffirmed its commitment to stabilizing consumer prices as inflation erodes personal wealth and threatens the economy.
However, Axel Merk, president and chief investment officer at Merk Investments, said the economic outlook could become more chaotic as the Fed faces an uphill battle against inflation.
Gold remains an important investment tool even though it has fallen below $2,000 and struggles to attract fresh bullish momentum, Merk said. It continues to function as a defensive asset and a hedge against inflation .
"Gold is always an asset that you're happy you owned yesterday, but you don't know why you'll have it tomorrow," he said.
His comments came as gold prices were trying to hold key support around $1,850 an ounce. Gold futures for June delivery were last at $1,847.60 an ounce, little changed during the session.
While gold had a solid first quarter, recent price action has been disappointing, but he noted that gold continues to outperform equities .
"We often talk about gold being uncorrelated to the stock market over the long term, that doesn't mean that when the S&P goes down, it's always going to go up, it means it's sometimes in sync with the S&P, sometimes in sync," he said. It's the opposite. Sometimes gold works on its own." "Price movements are part of the environment we're in. The Fed lifts the lid on the pressure cooker with its actions, and that's when things get a little chaotic."
Despite the Fed's hawkish stance on inflation, he said at the moment he doesn't believe the Fed will do what is entirely necessary to lower consumer prices. He added that he sees a growing risk of stagflation .
"One definition I've heard of stagflation is inflation, plus policy mistakes, because when there's inflation, it's not politically attractive to do it right," he said.
Merk Investments is taking stagflation risk seriously, as it recently launched a stagflation ETF (NYSEArca: STGF). The new fund provides investors with exposure to TIPS, gold, oil and U.S. real estate. He noted that all of these assets can perform well in a high inflation environment.
Not only is the Fed trailing the inflation curve trying to catch up quickly, but changing geopolitical trends are affecting longer-term expectations, he added. He pointed out that after the global supply chain was severely affected by the epidemic and the Russian-Ukrainian war, countries around the world are working hard to develop their own domestic resource supply. "We are entering a new normal because it is more expensive to move business back home," he said.
Merk said he likes gold as a portfolio stabilizer at a time when policymakers are busy addressing the current crisis without focusing on the larger long-term outlook .
"If you go from removing risk entirely to putting some risk back in, there's a distortion, right? You make all kinds of noise," he said. "When you get into a mess like ours, we have Volatile policy, so it can be good to have some diversification and some stability in your portfolio .”
Spot Gold Daily Chart
GMT+8 at 10:20 on May 27, spot gold was reported at $1853.59 per ounce
However, Axel Merk, president and chief investment officer at Merk Investments, said the economic outlook could become more chaotic as the Fed faces an uphill battle against inflation.
Gold remains an important investment tool even though it has fallen below $2,000 and struggles to attract fresh bullish momentum, Merk said. It continues to function as a defensive asset and a hedge against inflation .
"Gold is always an asset that you're happy you owned yesterday, but you don't know why you'll have it tomorrow," he said.
His comments came as gold prices were trying to hold key support around $1,850 an ounce. Gold futures for June delivery were last at $1,847.60 an ounce, little changed during the session.
While gold had a solid first quarter, recent price action has been disappointing, but he noted that gold continues to outperform equities .
"We often talk about gold being uncorrelated to the stock market over the long term, that doesn't mean that when the S&P goes down, it's always going to go up, it means it's sometimes in sync with the S&P, sometimes in sync," he said. It's the opposite. Sometimes gold works on its own." "Price movements are part of the environment we're in. The Fed lifts the lid on the pressure cooker with its actions, and that's when things get a little chaotic."
Despite the Fed's hawkish stance on inflation, he said at the moment he doesn't believe the Fed will do what is entirely necessary to lower consumer prices. He added that he sees a growing risk of stagflation .
"One definition I've heard of stagflation is inflation, plus policy mistakes, because when there's inflation, it's not politically attractive to do it right," he said.
Merk Investments is taking stagflation risk seriously, as it recently launched a stagflation ETF (NYSEArca: STGF). The new fund provides investors with exposure to TIPS, gold, oil and U.S. real estate. He noted that all of these assets can perform well in a high inflation environment.
Not only is the Fed trailing the inflation curve trying to catch up quickly, but changing geopolitical trends are affecting longer-term expectations, he added. He pointed out that after the global supply chain was severely affected by the epidemic and the Russian-Ukrainian war, countries around the world are working hard to develop their own domestic resource supply. "We are entering a new normal because it is more expensive to move business back home," he said.
Merk said he likes gold as a portfolio stabilizer at a time when policymakers are busy addressing the current crisis without focusing on the larger long-term outlook .
"If you go from removing risk entirely to putting some risk back in, there's a distortion, right? You make all kinds of noise," he said. "When you get into a mess like ours, we have Volatile policy, so it can be good to have some diversification and some stability in your portfolio .”
Spot Gold Daily Chart
GMT+8 at 10:20 on May 27, spot gold was reported at $1853.59 per ounce
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