With gold prices holding above $1,800, the metal is holding a solid foundation for the new year, and the precious metal will remain an attractive asset no matter what the Federal Reserve does with its monetary policy, according to a fund manager. Market comments and gold forecasts from Axel Merk, head of Merk Investments. cryptocoin.com We have prepared for our readers.
“Gold will be good as real interest rates stay in negative territory”
Axel Merk, head of Merk Investments, said in an interview that he expects gold to absorb the expected rate hikes as a hedge against inflation risk. Axel Merk comments:
Gold will continue to be good as real interest rates remain in negative territory. When I look at inflation protection, I’m not looking for the next meme (joke) stock. This is not inflation protection. If rates rise, then the ‘fun season’ may be over. And some meme stocks and other phenomena may go out.
Looking at inflation, Axel Merk says that the current stance of the US central bank’s interest rate hike means that they will never be able to get ahead of the inflation curve. He adds that if the Federal Reserve is serious about inflation, it will have to raise interest rates to 5% or 6% according to the Taylor Rule. Although inflation is expected to ease after last month’s 7% annual increase, Axel Merk states that even between 3% and 4% it is still too high for consumers.
Axel Merk: It’s getting harder and harder for Fed to put the genie back in the bottle
According to the CME FedWatch Tool, markets are pricing in four rate hikes this year, with rates set to begin in January. There are also growing expectations that the Federal Reserve may begin to lower its bloated balance sheet before the end of the year. However, Axel Merk considers meeting these expectations unlikely to affect rising inflation fears:
Inflation comes from more than just Covid-related supply shocks. The longer this goes on, the harder it is to put the genie back in the bottle. If they want to stay ahead of the curve, they need to surprise the markets. If they don’t do something big now, they risk doing something even bigger in the future.
Axel Merk said the current stalemate of the Federal Reserve could be a win for gold either way. He noted that the Fed’s expected ‘salami-style’ approach to interest rates will continue to be well supported and keep real rates in negative territory.
According to the famous manager, gold found a solid foundation here
Meanwhile, Axel Merk says if the Fed acts aggressively, it could push the economy into recession. The famous manager states that if the Fed wants to show the markets that it takes the current inflation threat seriously, it will want to surprise the market with a possible move in January and expresses the following for gold:
I’m very happy where the gold is right now. I think gold has found a solid footing here.
Saying that there is a lot of uncertainty surrounding the economy and the US monetary policy, Axel Merk emphasizes that gold continues to be an attractive portfolio diversifier. While 2022 is not expected to see a major market crash, the famous executive adds that it may be prudent for investors to take some profits off the table and avoid some unrelated assets.
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