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Gold Should Do Well As Equity Bubble Is Ready To Pop

President & CEO of Merk Investments
July 12, 2014

Complacency in financial markets is currently extremely high, and investors should have some gold in their core holdings to protect themselves said Axel Merk, president and chief investment officer of Merk Investments.

Merk was in Las Vegas on Friday to participate in a panel discussion at Freedomfest 2014, an annual convention that looks to gather free minds for open discussions on politics and the economy. In an interview with Kitco News’ Daniela Cambone, he said that he was pessimistic about equity markets, which he sees as a bubble ready to burst.

Merk said that gold continues to be an important diversifier for investors, which he added is why Merk Investments increased its gold holdings last year as prices fell.

Merk explained that rising equity prices on the back of extremely low volatility demonstrates the “amazing amount of complacency” in the marketplace.

“People have been buying, buying, buying and to me that is a bit concerning,” he said. “People are not aware of the risks of what they are buying; that has to end badly. It did so in tech stocks, it did so in real estate, it did so in bonds…”

It is not just Merk who paying attention to market complacency. The Federal Reserve also sees this as a concern; however, following the June 18 monetary policy meeting Fed Chair Janet Yellen said that the committee does not believe that the equity market is in bubble territory.

However, Merk said that the Federal Reserve is part of the problem that has created the current risk sentiment. He added that instead of low interest rates across the board, the Federal Reserve should “price credit according to the risk profile of borrowers.”

“We are just flooding the market with credit and that has to create bubble and miss-allocation,” he said. “For the time being (the Fed) should just get out of the way and allow the market to do what needs to be done.”

The Federal Reserve’s commitment to keep interest rates low is another reason why Merk is bullish on gold prices. Even if the Fed starts to raise rates, Merk said that he is not expecting it to keep up with actual inflation.

“Nominal rates might be going up, but inflation is picking up in the U.S. We see that in the general wage numbers for example,” he said. “When you have wage prices slowly keeping and you have the Fed promising to be all but behind the curve… I think gold should be doing quiet fine.”

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 (Courtesy of http://www.merkfunds.com )

Axel Merk is President & CIO of Merk Investments, LLC.  He is an expert on hard money, macro trends and international investing. He is considered an authority on currencies. You can contact Axel at: http://www.merkinvestments.com/about-us/contact-us/. You can follow Axel on Twitter: twitter.com/AxelMerk.


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