CEF Insights: ASA’s Merk Investments On Gold Sector Opportunities

CEF Insights: ASA's Merk Investments On Gold Sector Opportunities

Written by Summary

The US and global economies, as well as expectations for 2022.

Opportunities and outlook in the gold, precious metals and minerals sector.

Thoughts on the rise of cryptocurrencies.

Olivier Le Moal/iStock via Getty Images With inflation and geopolitics fueling volatility in investment markets, what opportunities should investors look for in the gold and precious metals sector? In this CEF Insights Podcast episode, Merk Investments’ Axel Merk, President and Chief investment officer, and Peter Maletis, Portfolio Manager, share views on the sector’s outlook and opportunities and impressions of the rise of digital assets.

CEFA:

Welcome to CEF Insights, your source for closed-end fund information and education, brought to you by the Closed-End Fund Association. Today, we are joined by Axel Merk, President and Chief Investment Officer, and Peter Maletis, Portfolio Manager for Merk Investments. Merk Investments is the investment advisor of ASA Gold and Precious Metals Limited, ticker ASA . We’re so glad you both can be with us.

Axel Merk:

Great to be with you.

Peter Maletis:

Good to be with you as well.

CEFA:

Axel, since we last spoke in May, inflation has become a more significant issue. The Federal Reserve is expected to shift from its highly accommodative policy and geopolitical tensions are increasing. Your firm regularly publishes economic and market research. What is your view on the US and global economies, as well as your expectations for 2022?

Axel Merk:

Well, we are quite concerned about inflation, and it’s not just that inflation has been high. What many people don’t appreciate enough in my view is that inflation is a process. Think about coming to a stop at a red light. When the light turns green, meaning when the supply chain issues are resolved, not everybody gets going at once. And so similarly, when people hear about inflation, everybody wants to somehow make up for it. That means they’ll ask for higher wages, they’ll try to push up prices. So the longer this lasts, the more the risk that this is going to get out of control. And the Federal Reserve even now is priced in to maybe go to neutral. And that’s just not “Good enough.”

Now all of that is paired with the growth outlook, which on the one hand we have this reflationary environment where especially Asia hasn’t opened up yet and we should get a boost, also inflationary pressures. But at the other end of the spectrum, things feel very much “A late cycle.” And so that’s a very, very unique environment that things have been as condensed as they are and they make for some very interesting investment.

CEFA:

Merk Investments focuses on gold, precious metals and minerals. Can you discuss your outlook for this sector, given your thoughts on the broader economies?

Axel Merk: Yeah. Several things to think about. One is inflation. It matters what the forward looking inflation expectations are. We think the Federal Reserve will not be too “tight.” And so even though real interest rates, meaning those net of inflation have been coming up, they continue to be negative. And when you don’t get paid to hold cash, then something like gold can compete in our view quite well.The other one to think about is financial conditions. The whole point of raising rates is to “tighten financial conditions,” which is a code word for increasing spreads of junk bonds and whatnot. And the reason that’s relevant for the precious metal sector is because especially junior companies are in notorious need of financing all the time because they need to develop the next stage of their growth.Now we think that the Federal Reserve is trying to be at least very, very careful that as they, “tighten,” that they don’t overdo it in the sense they don’t want to have the taper tantrum. They don’t want to provide an environment where financing becomes impossible. And the market already prices in that the Federal Reserve is going to ease again in about two and a half, three years. And so it’s an environment where we think there are lots of opportunities They are certainly not risk-free as the sector is, but there are lots of opportunities for the sector. CEFA: Peter, you manage ASA Gold and Precious Metals Limited, symbol ASA , which invests in a portfolio of companies in the precious metals and mineral sector. For investors looking for exposure to this sector, how does this type of portfolio differ from investing in the actual […]

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