The Federal Reserve reiterated its commitment to stabilize consumer prices as inflation erodes personal wealth and threatens the economy. However, Merk Investments Chairman and Chief Investment Officer Axel Merk says the economic outlook could become much more complex as the US central bank faces a tough battle in its fight against inflation and shares his gold forecasts.
“Gold is an asset you’re always happy to have”
Although gold prices fell below $2,000 and struggled to pick up any new upward momentum, Axel Merk has valued states that metal continues to be an important investment tool. The strategist states that gold continues to do its job as a defensive asset and protect against inflation:
Gold is always an asset you were happy to have yesterday. But you have no idea why you will buy it for tomorrow.
Axel Merk: Sometimes gold does its thing
The strategist’s comments came during the time period when gold prices tried to hold the critical support around $1,850 . As reported by Kriptokoin.com , gold futures were last trading at $1,862, up 0.78% on the day. While the recent price action of gold has been disappointing after a strong first quarter performance, Axel Merk notes that it continues to outperform the equity markets:
We often talk about how gold does not relate to stocks in the long run. This does not mean that when the S&P moves down it will always move up. That means it sometimes acts with S&P and sometimes against it. Sometimes gold does its thing. Price action is part of the environment we are in. The Federal Reserve, with its actions, lifted the lid of the pressure cooker, and that’s when things got a little messy.
Strategist predicts increased risk of stagflation
Although the Federal Reserve has taken a firm stance on inflation, Axel Merk is currently fully committed to lowering consumer prices. He says he is not convinced that he will do what is necessary. He adds that he sees the increased risk of stagflation. “One definition I’ve heard for stagflation is inflation, plus a policy mistake because when there’s inflation the right thing to do is politically unattractive,” the strategist says.
Merk Investments is taking stagflation risks seriously as it has recently launched a Stagflation ETF. The new fund gives investors the ability to purchase Treasury Inflation-Protected Securities (TIPS), gold, oil and US real estate. Axel Merk notes that all these assets can perform well in highly inflationary environments.
Strategist says he likes gold as a portfolio stabilizer
According to Axel Merk, the Federal Reserve is far behind the inflation curve and catching up fast Not only does it work, but changing geopolitical trends affect long-term prospects. He notes that after the global supply chain has been severely impacted by the Covid-19 outbreak and now Russia’s war in Ukraine, nations around the world have sought to develop their own local supply of resources.
“We are entering a new normal because there are higher costs for on-shore,” the Strategist says. Axel Merk says he loves gold as a portfolio stabilizer in an environment where policymakers are trying to resolve today’s latest crisis without looking at the long-term big picture, explaining:
If you move away from completely eliminating risk and then take some risk, you’ll run into distortions, not is it? If you make all kinds of noise and you’re in a mess like us, there will be erratic policies. So it might be good to have some diversification, some stability in your portfolio.
