Axel Merk, founder of Merk Investments, believes that the market need not be overly anxious about the Federal Reserve's future policy shifts. Even if Kevin Warsh, upon taking the helm at the Fed, is committed to normalizing monetary policy and reinforcing discipline, this will not undermine the long-term investment logic for gold. Merk points out that Warsh is striving to insulate the central bank from political interference, refocusing it on its core mandates such as price stability and credit costs. This shift will help restore market confidence in the Fed.

The Fed's recent 25-basis-point rate hike validates Warsh's previous hawkish stance on inflation control, effectively rebuilding the central bank's market credibility. Merk believes that this decisive rate hike is establishing a solid foundation of trust within the Federal Open Market Committee. However, the stabilization of monetary policy does not mean that the deep-seated structural issues in the U.S. economy have been resolved. Merk states frankly that if the fiscal situation continues to deteriorate, even the most effective monetary policy can only play a limited role and might even exacerbate the situation.

The core variable determining the ultimate trajectory of the U.S. economy still lies on the fiscal side. Merk is deeply concerned about the ever-widening government deficit and debt trajectory in the United States. He admits that while a high-interest-rate environment can, to some extent, compel legislators to regulate spending, relying solely on rising bond yields is hardly enough to truly rein in Washington's purse strings. Looking back at the era of prolonged low interest rates following the Global Financial Crisis, cheap borrowing costs greatly stimulated excessive government borrowing. Now, as Warsh pushes for policy normalization, he has at least dismantled the incentive for blind expansion, bringing the deficit issue back into the public eye and forcing policymakers to confront this challenge head-on.

Although Warsh hopes to absorb the debt burden through stronger economic growth and productivity gains, Merk does not consider this a foregone conclusion. Meanwhile, the current tech investment boom led by artificial intelligence conceals a massive amount of debt financing. Merk notes that once this debt-driven prosperity gives way to a downturn, policymakers will typically opt to lower interest rates to alleviate the legacy debt pressure. This potential expectation of monetary easing will provide additional support for gold.

Faced with the aforementioned macroeconomic landscape, Merk insists on utilizing gold as a crucial tool for risk diversification. He admits that in the face of fiscal turmoil, gold's hedging role in asset allocation is virtually irreplaceable. This macroeconomic judgment is directly reflected in his actual portfolio management. Although Merk slightly reduced his gold position when Warsh emerged as a potential successor to the Fed Chair, the overall adjustment was highly restrained. Currently, he still maintains significant exposure to gold and mining stocks, believing that at current price levels, the profit margins for gold producers remain highly lucrative.