Merk Likes Euro, Sterling & Gold Miners

July 14, 2014

Axel Merk is considered one of the top currency experts in the industry. He is president and chief investment officer of Merk Investments, based out of Palo Alto, Calif. Merk is the manager of the Merk mutual funds, including his flagship Merk Hard Currency Fund. He recently launched the Merk Gold Trust, a deliverable gold ETF. Merk is a regular on CNBC and Bloomberg TV, and the author of "Sustainable Wealth."

Merk recently sat down with to discuss his concerns around low forex volatility and the ECB's latest round of stimulus. He also tells us his current top currency picks and his thoughts on the bitcoin ETF filing. Forex volatility is at record lows. What do you make of this low volatility in the currency markets, and does it concern you?
AXEL MERK: The low volatility in all markets, including the foreign exchange markets, does concern me. It signals complacency. We have scared away many investors in the foreign exchange markets. We have scared away many of the big players. Many hedge funds have left that business. Many banks are less able to trade their own book. All of that means there is a potential for less liquidity. It also means people might be caught off guard at some point when volatility comes back. What's causing this low volatility, especially in the currency markets?
Merk: All kinds of things. First of all, Dodd-Frank and other regulations have pushed some players out of the market. That's the first reason. The second reason is that a lot of folks who have had systematic trading strategies have not made money in recent years. That has caused some exit. Then the central banks around the world that are working very hard to keep volatility low have contributed as well.

All of that spills over to general complacency across investors. That's probably my biggest concern. That's obviously the final driver then why volatility is very low in foreign exchange markets, as well as in some other markets. What are your favorite currencies against the U.S. dollar for the remainder of the year?
Merk: That's a good question. We often like to mention the euro, simply because everybody always loves to talk down the euro. The European Central Bank is talking down the euro so much. Having said that, while we are positive on the euro versus the dollar, we think the sterling will outperform the dollar.

At the other end of the world, we think the Australian dollar, which has been held back quite substantially, should benefit quite a bit from the sea of liquidity that should continue to be around; also because we think China is going to do much better than many people expect. On that note, while the currency is not historically as volatile, we do like the renminbi as well.

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