February 2026
Axel explains why gold itself remains constant, even as perceptions shift, and how central bank diversification, geopolitical tensions, currency weaponization, and rising fiscal pressures are reshaping global demand.
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Good morning everyone. We will get going on the probably the hottest session today. Gold talking about gold. And we're happy to have Axel Merk, president and CEO of Merk Investments, a $2 billion asset management firm in Palo Alto. Also, the manager of our OUNZ Gold Fund. As most of you are aware, we've had a strategic allocation to gold over ten years.
We believe it's a store of value and a hedge against currency depreciation. Some of the issues are with too much debt and US dollar going down, obviously have been around for quite a while. And also inflation. What in your opinion has driven gold to be such an outperformer this year?
Yeah. Thank you and it’s great to be with you. I think we've known each other for almost fifteen years, and this is the first time we're sharing the stage. I'll try to give you some food for thought that you don't hear from everybody else. So the first one is, I think it's good to keep in mind that gold is the constant.
Gold is the same. It's always been. It's the perception of gold. How we look at gold that's changing. Gold tends to be with those that have wealth and moves over to the ones that have wealth. And so just rather than think about the price going up and down, think that there's a constant there. Obviously the price is changing.
The big change that happened in the perception of gold and the valuation of gold, I believe, happened a few years ago when the dollar started being quote unquote, weaponized. It's been in the interest of the United States to penalize other countries that don't behave well. And, financial sanctions were well imposed, and that provides a quote unquote, incentive for other countries to diversify out of the dollar.
That doesn't mean everything is piled into gold by those central banks, but gold is a beneficiary. The other food for thought I'd like to give you is there's been a lot of talk about tariffs. Well, tariffs impede not just the flow of goods. They throw a wrench into the world of finance as well, because the other side of the goods is money.
And so this global machinery, which we call exorbitant privilege, where you borrow cheaply in the US to invest in high, far higher returns abroad while it's still working. There is sand in that. And that engine. And the result of that is that borrowing costs in the US are higher. That does pressure on the central bank to lower rates.
And so those sort of things help the price of gold. Before I hand it back to you. A lot of these so-called fringe views of the gold bugs have moved closer to mainstream. And this market isn't that huge. So it doesn't take that many investors to push the price of gold higher.
So. So we know that, central banks have been a big buyer of gold, kind of maybe diversifying away from US dollars into gold. Have you seen any demand coming from ETFs or retail investors as well? Is that also have been the driver of price of gold?
So to answer the question again, let me take a step back of who. When I look at buyers of gold there is retail. There's institutions. There are central banks, there's speculators. The speculator has come back. The speculator used to be in gold and then went on to meme stocks, to SPACs due to the Mach seven. And they have come back in recent months.
That mostly increases volatility. You have the diversification buyer. They have always been around. You have to buy a concern about the purchasing power of the dollar. That's increased. Central banks have increased. And so you ask about retail retailers not being the reason why we've had this amazing run up. And I say that because the the physical gold ETF Holdings, which is a retail product to to a significant extent has not reached all-time highs in terms of ounces that they hold.
Retail actually has come back about a week ago just before the dip. There were there were a little bit of inflows and then notably on the recent sell off, including yesterday, that was significant, money pouring in, but that's really buying on the dip. So it is it is not the retail buy it. It's pushing that.
And on the just on on the on the physical side, one of the things that's happening is retail has been selling, a selling gold to the local dealers. So when we talk to wholesalers that typically supply to dealers, they're not ordering from the mint because there's plenty of gold that comes back to, to, to the coin dealers.
And, and so this is not a typical sign of what you would call a market top from a retail point of view.
All right. So you mentioned speculators came back a week or so ago. And we've had a huge pullback in gold $ yesterday. And I looked I think this morning was down another % or so. Is it just a technical pullback in your opinion or is this something more behind it.
Well we obviously had a huge rally. And I don't want to get too technical, but one of the things that happens in any market, there are derivatives markets. And there is an options market in, in that where the folks that make a market, they hedge their book, they're not speculators. And we are in an environment where they exacerbate moves.
And we had some historic highs in that. And that's part of the reason why these moves have been so dramatic. But of course, leading up to that, the run up has also been quite dramatic. And so there are a gazillion opinions about why the selloff has happened. Clearly things don't go up in a straight line. I think the the noteworthy thing is that speculators, they're not very loyal.
There's a trend. They jumped on it. And the key thing that speculators do, they increase volatility. And it's a reminder that gold historically has a volatility similar to the equity markets. But it can jump. And the jumping that's happened. And we've obviously had a stock remind of that in recent days.
I know that you also invested in gold mining stocks. And we also have exposure to gold mining stocks as a levered play to the price of gold. The valuations have been fairly reasonable and they've shown some fiscal discipline in terms of deploying capital away from what they've done in the past. What's your view on the mining sector in general?
The dynamics in the gold miners are somewhat different. The gold the Golden State is historically a diversifier defensive one obviously can also go up or down quite steeply. Gold mining is known to be a volatile space. It makes a huge difference whether you invest in a large producer or a small exploration company. When you invest in the smaller companies, they tend to get funding for a year or two.
And you have, I call it credit risk. They don't do that. But during the quote unquote high off a long environment that were depressed, they also over the decades, miners have often disappointed. And because of that, in part because of that devaluations in the miners, I actually very, very low relative to the price of gold. The gold in the ground is not appreciated by investors as much as as it used to be in previous cycles.
One thing that is the theoretical thing about gold investing in miners is that the cost of mining is fixed, and then you have a disproportionate gain when the price of gold rises and therefore you have more leverage. In practice, that often doesn't work because it's very energy intensive to mine at %, % is cost of energy. Often when gold goes up, oil goes up as well.
When the price of gold goes up, the workers like to have higher salaries. The government's higher taxes. What's very special about the current environment is we haven't seen these amazing cost pressures. And so a lot of it is going to the bottom line. And it's say the only thing that happens is and I understand you invest in an actively managed product.
The the gold mining space has I'll use a fairly fancy term, the greatest dispersion of risk, meaning the returns of all over the place. You can't just buy the index because it's a rapidly depleting asset. The biggest miners that on the big ETF they have under-invested, which means they they make a lot of money right now, but they cannot possibly make up for for the gold that they take out of the ground.
And so they're getting involved in Copper Gold Project and others. And so going down to two smaller miners as you can do. And I think you invest in a mutual fund that they are you can actually take advantage of, of value. That's not just relative to the price of gold, but also to company management, because in the they're the one thing in the gold mining space similar to any other spaces, these discourses, the resources good management.
You want to invest in management teams that that can get the permitting, that can get the gold out of the ground and all that. And, and then so gold mining space is one place where you want to be in active management.
Then you maybe also expand a little bit on the thing that you mentioned about the basement, like move away from the US dollar. A lot of countries maybe are looking to do that, basically lower the influence of us globally. Is that going to be a big factor in your opinion going forward as well?
I think it's one of the risks that we have to keep in mind. And do you want to prepare for the risk before it actually hits you? The argument has been a lot of talk about the management. And if you do a keyword search, how popular it is, it's certainly come up in the news. We don't see that in the data, so to speak.
If there was a true debasement happening already, you would see other disruptions in the market. And, and there are the various measures you can look at, and we don't see much of that. Now, that doesn't change the fact that that foreign governments are incentivized to diversify out of the dollar. They are just doing it very prudently, very rationally, very slowly.
But again, because that market is fairly small, it can have an outsized impact even when it's orderly. And so some of the folks in the gold community says, well, the volatility we've seen isn't anything yet, because if indeed we were to have a seriously basement trade, it would get far more volatile. Keep in mind, I think in the previous talk, it was talking about .
If there were more serious disruptions, the one thing we've learned is policymakers are willing and able to change the rules of the game along the way. And so you think you're doing all the right thing. You're prepared for the financial crisis, and then it actually happens and says, oh my God, there's a bailout here. There's this thing happening here.
And so it's a it's, it's an interesting world we live in. And if I can just add to that one thing that's, I think a contributing driver to the Price of Gold is that I believe the the peaceful period we've seen since World War two is somewhat over. And what we see in Ukraine or Gaza are just symptoms of a new era.
And what that means is that doing business is less efficient. We also see more nationalist activity by governments, not just in the U.S. around the globe. Again, reduced efficiency, which means it's more expensive and it's ultimately more inflationary. Also something that that's supportive for the price of gold.
Right? I know there there are a few ETFs that are around that. We use your uncle, which has some unique features of convertibility. And also you use only allocated gold. Can you explain why those features are important?
Yes. So in a when when you buy gold, you can pull it under your mattress. The beauty about gold is it doesn't have counterparty risk as. Except the moment you touch it, when the moment you touch it, you can lose it. You can have it stolen. And so the moment you have a little bit more gold, you worry about storage.
And we develop the product where we hold institutional gold. These are the big James Bond London bars in London. And they are hold on a segregated basis. You own a pro-rata ownership of that trust. These are grantor trusts. You own that underlying gold. And unlike our competitors we allow investors to actually take delivery of that. Now nobody who was a retail investor wants to have a James Bond looking London bar.
They prefer coins and say we have a patent, a process that we facilitate an exchange into coins. You basically when you take delivery, you pay the premium, to take delivery of that, be most people buy that ETF because of that optionality. But we get one, or , sometimes five of these deliveries a month. They happen and they're not a profit center to us.
So we pretty much pass along the cost to investors. And it it it allows people and sometimes people just ship it to another vault. And but it allows people to, to have that assurance that they can take care, take delivery of the gold if they requested.
And the subject is allocated versus unallocated gold. Why is that very allocated?
Gold means it is held in your name, unallocated gold is it's a liability of the bank or the institution where you hold it. And if that institution is in trouble, then then your gold is also at risk. And so we have very strict that the gold has to be allocated value that very highly. By the way, one thing I should say as well is when you take delivery of the gold, you're taking delivery what you own.
So it's not considered a sale. There's no tax reporting, of that gold. And so it's a it's one of the nice features that you have as well that you whereas if you hold one of the other gold ETFs would like to have a coin one day, you have to sell it, pay taxes and then you can buy gold later.
So I know we have a few minutes left. You just want to see if anybody has any questions. Yes.
I own rare earth metals compared.
Yeah. How do rare earth metal relate to gold? They are even more volatile. How is that? Rare earth metals are not that rare. They are. Just don't show up in great concentrations. And China is obviously a big leader. There are some gold companies that when when you mined any metal, you often have other byproducts. And there are some gold mining companies that actually have rare earths, and I don't want to name them here because the public hasn't really paid attention to some of those.
When that will appear on the news, I expect those share prices to become more volatile, in particular because there are government efforts, obviously, to to foster domestic production. On that note, by the way, gold was declared a strategic mineral as well. In the, in the US, which helps for permitting if you're on, on federal property in the US, obviously gold is mined from around the world, but the one of the big differences is that gold has very little industrial use.
Whereas if you go to other metals, precious metals and obviously also to to to these minerals, they have a lot of industrial use, which means the dynamics are far more complex. Silver already when there are fears of an economic slowdown, it tends to plunge and then the next day it skyrockets because they the perception is that the interest rates are going to get lowered.
And so gold is I call it the purest indicator of the monetary madness that we have in the world, because it has the most direct sensitivity to that. And obviously, when you go to those rare earths, you. Yeah, very different dynamics on top of it.
Yes, I know, South Africa and Russia are the biggest producers of gold, both of which are not the most stable economies in the world. Is there any risk associated with where gold is actually being mined?
Yes. Including the U.S, there is, there's geopolitical risk everywhere. South Africa has long fallen off as a as a top producer. There is, gold mined just about anywhere in the world. We stay away from, China and Russia, but, we, we have companies that mined gold in Latin America and Africa and Australia also the the the place where it's the best to invest changes.
A few years ago, Western Africa was a good place. Now not so much. Latin America was, a little difficult a few years ago, and it's gotten much easier. So the the one thing to keep in mind is that you it's infected the price. So if you have a gold mine in a country where I have a dictatorship, well, they get stuff done, right.
That has some advantages as well. And if you have a cool while, gold tends to be a big part of the revenue for that country. So even if you have a change in leadership, it doesn't mean the dynamics are very, very different in different countries. And yes, it helps to get to know the places by just investing in the quote unquote safest place.
Doesn't necessarily give you the best returns.
