Investors: The Fed's hawkish stance does not change the bullish trend in gold; the long-term positive market logic remains intact.
2026-06-20 01:34:28
Axel Merk, founder and CEO of Merk Investments, stated that even if the Federal Reserve shifts its policy focus to combating inflation and adopts a more hawkish stance, gold investors should not assume this policy shift will end the long-term bull market for precious metals. While new Fed Chairman Kevin Warsh has clearly signaled a tightening monetary policy, Merk believes that the current short-term market headwinds for gold will ultimately solidify the long-term foundation of the gold market. On one hand, a hawkish monetary policy can significantly reduce market uncertainty at the policy level; on the other hand, it will guide investors to look beyond short-term interest rate fluctuations and refocus on the continuously deteriorating fiscal fundamentals of the United States.
On Wednesday, Warsh held his first press conference since taking office as Federal Reserve Chairman, formally listing combating inflation and maintaining price stability as core policy pillars of his term. The market interpreted his public statement as a strong hawkish signal, and traders immediately raised market expectations for future Fed rate hikes, putting short-term pressure on gold prices. However, Merkel clearly pointed out that investors should not equate the Fed's hawkish stance with a long-term negative for gold.
Merck stated bluntly: "Under the same conditions, Kevin Warsh's hawkish policy will indeed put short-term pressure on gold prices, but in the long run, the policy can effectively reduce market volatility and is actually a long-term benefit to the gold market."
Policy reform benefits: reduced intervention, lower volatility, and reshaping market pricing logic.
Merck believes that the most valuable reform in the Warsh Treaty is reducing the Federal Reserve's excessive reliance on forward guidance to the market, returning the power of economic pricing and the transmission of signals to the financial markets. For many years, the Fed's frequent policy interpretations, signaling, and verbal guidance have severely distorted the normal functioning of the market, continuously amplifying market volatility and causing unnecessary market fluctuations.
“While the Fed’s past policy adjustments have aligned with market needs, they have generally been severely lagging, with each adjustment causing greater market damage. Now, by avoiding such major policy mistakes, we can reduce market volatility at its root,” Merck explained. At the same time, he emphasized that the Fed’s official economic projections and dot plots have never possessed accurate market prediction capabilities; instead, they frequently interfere with market sentiment and generate ineffective volatility, making them of extremely low reference value.
The continued decline in monetary policy uncertainty will bring unexpected positive changes to the gold market. In the future, investors will not need to overthink every policy statement, dot plot data, and interest rate forecast from the Federal Reserve. Market attention will gradually return to the core structural logic supporting gold – the increasingly heavy and unsustainable debt and fiscal deficit problem in the United States. "Regardless of short-term market movements, the current US fiscal deficit model is unsustainable, which is the most crucial fundamental support for gold bulls," Merck stated. The pricing focus of the gold market will ultimately shift from short-term monetary policy fluctuations to long-term fiscal risk hedging.
Breaking Investment Misconceptions: Gold's Value Does Not Depend on Short-Term Interest Rates and Opportunity Costs
The current market debate centers on whether high interest rates and high bond yields will continue to suppress gold prices. Traditional financial logic holds that gold is a non-interest-bearing asset, and rising interest rates and yields increase the opportunity cost of holding gold, thus negatively impacting its price. However, Merck has explicitly challenged this single, fixed logic.
He pointed out that gold plays multiple core functions in an asset portfolio and is by no means a simple interest rate benchmark. During periods of monetary system turmoil and continued fiscal deterioration, gold's core value lies in resisting currency devaluation, preserving asset purchasing power, and hedging against systemic risks. "My core purpose in allocating gold has never been to profit from short-term interest rate differentials, but rather to safeguard the long-term purchasing power of assets," Merck said.
Even if Warsh successfully rebuilds the credibility of the Federal Reserve's monetary policy and steadily advances its anti-inflation efforts, the decline in inflation and economic recovery will take a long time and cannot be achieved overnight. Merkel cites the example of legendary Federal Reserve Chairman Paul Volcker, who forcefully tightened monetary policy in the 1980s, successfully reversing the extremely high inflation trend. However, even so, he failed to reduce inflation to the 2% target level during his tenure. A substantial decline in inflation only gradually materialized later in Volcker's term and early in Greenspan's tenure. This means that the long-term risk of inflation will persist in the market, providing continuous support for the demand for gold as a hedge against inflation.
Short-term disturbances do not change the long-term trend; fundamentals support the continuation of the bull market.
Aside from the influence of monetary policy, the recent slight downward pressure on gold prices is mainly due to temporary geopolitical disturbances. Geopolitical tensions in Iran affect oil prices, inflation expectations, and real interest rate fluctuations, creating a short-term ripple effect that suppresses gold prices. However, Merck predicts that this unconventional price linkage is not sustainable and will eventually normalize and disintegrate.
"The short-term correlation between gold and oil prices will eventually break down, and this change will be a major positive factor for a gold price rebound." Merck believes that after the short-term pressure from geopolitics subsides, gold will return to its own fundamental logic.
Merck concluded by emphasizing that investors should not simplify the logic of gold investment to a simple game of interest rate fluctuations. While the Fed's hawkish policies have alleviated some policy uncertainty, they cannot solve the long-standing core problems such as the high US fiscal deficit, high government debt, and frequent global geopolitical risks. These deep-rooted structural risks are the core support for gold's long-term investment value, meaning that the bull market for gold is solid and will not end due to a short-term shift in Fed policy.
On Wednesday, Warsh held his first press conference since taking office as Federal Reserve Chairman, formally listing combating inflation and maintaining price stability as core policy pillars of his term. The market interpreted his public statement as a strong hawkish signal, and traders immediately raised market expectations for future Fed rate hikes, putting short-term pressure on gold prices. However, Merkel clearly pointed out that investors should not equate the Fed's hawkish stance with a long-term negative for gold.
Merck stated bluntly: "Under the same conditions, Kevin Warsh's hawkish policy will indeed put short-term pressure on gold prices, but in the long run, the policy can effectively reduce market volatility and is actually a long-term benefit to the gold market."
Policy reform benefits: reduced intervention, lower volatility, and reshaping market pricing logic.
Merck believes that the most valuable reform in the Warsh Treaty is reducing the Federal Reserve's excessive reliance on forward guidance to the market, returning the power of economic pricing and the transmission of signals to the financial markets. For many years, the Fed's frequent policy interpretations, signaling, and verbal guidance have severely distorted the normal functioning of the market, continuously amplifying market volatility and causing unnecessary market fluctuations.
“While the Fed’s past policy adjustments have aligned with market needs, they have generally been severely lagging, with each adjustment causing greater market damage. Now, by avoiding such major policy mistakes, we can reduce market volatility at its root,” Merck explained. At the same time, he emphasized that the Fed’s official economic projections and dot plots have never possessed accurate market prediction capabilities; instead, they frequently interfere with market sentiment and generate ineffective volatility, making them of extremely low reference value.
The continued decline in monetary policy uncertainty will bring unexpected positive changes to the gold market. In the future, investors will not need to overthink every policy statement, dot plot data, and interest rate forecast from the Federal Reserve. Market attention will gradually return to the core structural logic supporting gold – the increasingly heavy and unsustainable debt and fiscal deficit problem in the United States. "Regardless of short-term market movements, the current US fiscal deficit model is unsustainable, which is the most crucial fundamental support for gold bulls," Merck stated. The pricing focus of the gold market will ultimately shift from short-term monetary policy fluctuations to long-term fiscal risk hedging.
Breaking Investment Misconceptions: Gold's Value Does Not Depend on Short-Term Interest Rates and Opportunity Costs
The current market debate centers on whether high interest rates and high bond yields will continue to suppress gold prices. Traditional financial logic holds that gold is a non-interest-bearing asset, and rising interest rates and yields increase the opportunity cost of holding gold, thus negatively impacting its price. However, Merck has explicitly challenged this single, fixed logic.
He pointed out that gold plays multiple core functions in an asset portfolio and is by no means a simple interest rate benchmark. During periods of monetary system turmoil and continued fiscal deterioration, gold's core value lies in resisting currency devaluation, preserving asset purchasing power, and hedging against systemic risks. "My core purpose in allocating gold has never been to profit from short-term interest rate differentials, but rather to safeguard the long-term purchasing power of assets," Merck said.
Even if Warsh successfully rebuilds the credibility of the Federal Reserve's monetary policy and steadily advances its anti-inflation efforts, the decline in inflation and economic recovery will take a long time and cannot be achieved overnight. Merkel cites the example of legendary Federal Reserve Chairman Paul Volcker, who forcefully tightened monetary policy in the 1980s, successfully reversing the extremely high inflation trend. However, even so, he failed to reduce inflation to the 2% target level during his tenure. A substantial decline in inflation only gradually materialized later in Volcker's term and early in Greenspan's tenure. This means that the long-term risk of inflation will persist in the market, providing continuous support for the demand for gold as a hedge against inflation.
Short-term disturbances do not change the long-term trend; fundamentals support the continuation of the bull market.
Aside from the influence of monetary policy, the recent slight downward pressure on gold prices is mainly due to temporary geopolitical disturbances. Geopolitical tensions in Iran affect oil prices, inflation expectations, and real interest rate fluctuations, creating a short-term ripple effect that suppresses gold prices. However, Merck predicts that this unconventional price linkage is not sustainable and will eventually normalize and disintegrate.
"The short-term correlation between gold and oil prices will eventually break down, and this change will be a major positive factor for a gold price rebound." Merck believes that after the short-term pressure from geopolitics subsides, gold will return to its own fundamental logic.
Merck concluded by emphasizing that investors should not simplify the logic of gold investment to a simple game of interest rate fluctuations. While the Fed's hawkish policies have alleviated some policy uncertainty, they cannot solve the long-standing core problems such as the high US fiscal deficit, high government debt, and frequent global geopolitical risks. These deep-rooted structural risks are the core support for gold's long-term investment value, meaning that the bull market for gold is solid and will not end due to a short-term shift in Fed policy.
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