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In a recent interview conducted by Mike Maharrey from Money Metals with Axel Merk, President and Chief Investment Officer of Merk Investments, they discussed the impacts of macro trends, Federal Reserve policies, and the outlook on gold markets following a Federal Reserve meeting.

Axel Merk highlighted the significant influence of the Federal Reserve's actions and messaging on the economy, criticizing the lack of a quantitative approach in their policy decisions. He pointed out the historical consequences of the Fed's policies, including inflationary periods and the Great Depression, and emphasized the importance of a medium to long-term strategy over immediate actions. 

(Interview begins at the 6:27 mark)

Despite the recent Fed meeting's lack of policy change, Merk argued that the Federal Reserve has not adequately addressed inflation and criticized their communication strategy for adding to market volatility and uncertainty.

There are 3 kinds of lies: lies, damned lies, and statistics.

During the discussion, Merk and Maharrey examined the Fed's reliance on dot plots and forward guidance, questioning their effectiveness and accuracy. Merk critiqued the shift towards these tools and the removal of market-based indicators, which has complicated monetary policy and obscured the health of the economy. He also touched upon the distortions in economic data and the misleading nature of short-term indicators.

The conversation shifted to the Federal Reserve's quantitative tightening and its impact on the financial system. Merk described the challenges faced by the Fed in managing the balance sheet and the interplay with fiscal policy. He expressed concern over the lack of market-based feedback and the consequences of excessive and unsustainable government deficits.

Global Gold Rally

Focusing on gold markets, Merk provided insights into the recent gold rally and its sustainability. He attributed much of the demand for gold to foreign central banks diversifying away from U.S. treasuries and discussed the different types of gold buyers. Merk also explored the potential effects of economic conditions on gold prices and the implications for investors.

Questions and Answers

In the interview between Mike Maharrey and Axel Merk, several key questions were raised and answered, providing insights into Federal Reserve policies, macroeconomic trends, and the gold market. 

Has the Federal Reserve done enough to tackle price inflation?

Axel Merk's response: The Fed hasn't done enough; their approach lacks a quantitative strategy, making their actions less predictable and potentially ineffective. The effectiveness of the Fed's policies should be judged over the medium to long term, and their current communication strategy may contribute to market volatility and job losses.

How credible are the Federal Reserve's projections and dot plots?

Axel Merk's response: Dot plots and forward guidance from the Fed are unreliable and often misunderstood. They've become a confusing tool rather than providing clear guidance. The Fed's shift away from market-based indicators to tools like dot plots complicates monetary policy and detracts from its clarity and effectiveness.

Is the current interest rate level causing unseen damage to the economy?

Axel Merk's response: The true impact of current interest rates is uncertain, as neither the Fed nor analysts have a crystal ball. However, historically, tight monetary policies lead to recessions. Current economic data might be stronger than anticipated, but consumer delinquencies are rising, suggesting underlying issues.

What is the significance of the Fed's balance sheet reduction?

Axel Merk's response: Quantitative tightening (QT) is complex and its effects are unclear. The Fed's reduction of the balance sheet is a response to previous expansions, but its real impact on monetary policy and market health is debatable. It reflects the Fed's struggle with managing monetary policy without clear market-based indicators.

What is driving the current gold rally, and is it sustainable?

Axel Merk's response: The rally is driven by diverse factors including demand from foreign central banks, diversification strategies, and concerns about the U.S. dollar's purchasing power. The sustainability of the rally depends on various economic factors and investor behavior, including the Fed's future monetary policy actions.

What are your thoughts on the price trajectory of gold and silver?

Axel Merk's response: The future prices of gold and silver depend on economic outlooks, Fed actions, and market sentiment. While precise predictions are challenging, economic downturns and Fed easing cycles could favor gold prices. Silver, while generally tracking gold, has its dynamics influenced by industrial demand.

How does monetary policy impact the valuation of gold?

Axel Merk's response: Gold is often seen as a reflection of monetary policy and the health of the U.S. dollar. It doesn't change inherently; rather, its valuation reflects changes in the economic environment and monetary policy. Gold's role as a store of value becomes more pronounced amid monetary uncertainty.

These questions and answers shed light on the complexities of Federal Reserve policies, their impact on the economy, and the factors influencing the gold market. Merk advocates for a risk management approach in investments, highlighting the uncertainties and challenges in predicting economic trends and the effects of monetary policies.

Conclusion

In conclusion, Axel Merk emphasized the importance of humility and risk management in investment strategies, advocating for a balanced perspective on economic and monetary policies. He provided avenues for following his work and analysis, encouraging critical thinking and a broader understanding of market dynamics.

Mike Maharrey wrapped up the interview by thanking Axel Merk for his insights and highlighted the value of understanding the complex interplay between monetary policy, macroeconomic trends, and investment decisions, particularly in the context of precious metals like gold and silver.

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