Axel Merk: Treasury Is Patching the Problem—and Gold Loves It

0:05Trevor Hall: Hey, good morning, everybody. Welcome into this week's long-form episode here on Mining Stock Daily. I'm your host, Trevor Hall, and we have a very timely long-form conversation to get you through the rest of the trading day here on Friday and into the weekend. Welcoming back Axel Merk of Merk Investments. This was recorded Wednesday afternoon, just hours after Treasury Secretary Scott Besson announced his plans to more than double the Treasury's buybacks of those longer dated U.S. government debt obligations and gold just ripped through it. So Axel and I break down what that move actually means, why the long end of the Treasury curve has been under so much pressure, and whether it's a legitimate solution or simply just another attempt to manage the symptoms of America's growing fiscal problem.

0:57Trevor Hall: So great conversation with Axel. And towards the end, we do ask him his perspective on the ongoing situation happening with the ASA Gold and Precious Metals Fund, where Merck Investments was recently terminated as advisors, despite years of very strong performance there. Highly recommend listening to it in its entirety. Big thank you to Revival Gold, Equinox Gold, Visa Silver, and Antigua Resources for their continued support of Mining Stock Daily. The support allows us to keep bringing you these conversations every trading day and into the weekend. And also a quick mention here, I want to thank Tara Hutton, tarahutton.io, mining companies.

1:37Trevor Hall: They can spend millions of dollars advancing an asset, but if investors can't find them or quickly understand the story, the work can easily go unnoticed. Tara Hutton, they do help resource companies improve their digital presence, search visibility, and online storytelling. So the progress happening on the ground is properly represented online because a great project without a story is just data. So if you're interested, if you run one of those companies and need more of an online presence, a visualization, go visit our friends over at terahutton.io. All right, let's get into my conversation here with Axel Murr.

2:13Trevor Hall: I'm going to start off the conversation with a little bit of a story for you because I think it kind of goes back to this late winter. I think it was back in February or March. Unfortunately for my children, sometimes I make them listen to Bloomberg Radio in the car. And actually you had come on while all four of us were in the vehicle. And it was back when gold was still above$5 ,000. And you made this comment and it's like, you guys only want to talk to me when the gold market is like at a fervor boiling over, like it's frothy. And he says, I should probably be selling right now that you have invited me back to Bloomberg.

2:54Trevor Hall: And needless to say, the sell-off started shortly after this. So you did mention yourself as a contrarian indicator right there. But I just started there because all of my family, including my two kids, know who Axel Merck are because I make them listen to Bloomberg. I think that might tell more about your family than anything else. It's a pleasure to have you back on, my friend. Good to see you. No, thank you. No, I've had a long-term relationship with Bloomberg. Some of the folks there love me. There's one guy, I'm not going to mention his name, who actually blocks me on social media. And so it goes to full gamut.

3:41but yes they do tend to call me when when it's when when precious metals are doing well

3:47Trevor Hall: yeah yeah well precious metals are doing well today you and I are recording Wednesday afternoon gold's up about two and a half percent back over forty five hundred dollars announced on that front month contract but there's reason for this and we're going to spend as much time diving into the mechanics of this doubling down of the long end of the curve buybacks by Treasury Second Secretary Scott Besant. So before we get into this news, Axel, help me understand why that 30-year Treasury yield was hitting levels we hadn't seen in almost 20 years. In fact, 2007. Because most people assume the U.S.

4:32Trevor Hall: government can always borrow easily, But that doesn't necessarily seem to be as clear as day right now. Something has changed. What is the real problem in your eyes? Fantastic question. Ultimately, prices set up by supply and demand. And the longer you go out in the yield curve, the more difficult it is to put your finger on what exactly it is that's driving the yield. People talk about the deficits that are high and unsustainable, that that has a greater impact. I've referenced trade wars. When you have trade wars, you're impeding not just the flow of goods, but also the flow of currency that pushes up yields.

5:16The deglobalization increases that. One argument that's been made is the term premium is increasing. It's the uncertainty about the future rate path. And if you've paid attention, you're confused about what's going to happen, right? Is inflation going to be high? Is the supply shock going to be resolved? Importantly, what it is not about, and people are trying to filter in when they say, hey, what's wrong with the bond market? They try to just throw in whatever they don't like about the economy, the politics, or whatever. it is not the market losing confidence in the Federal Reserve. And the reason I say that is because you can measure that.

6:02Now, nobody knows what long-term inflations are, but there are market-based measures on that. And in particular, there are market-based measures where you get rid of the early years, just look at the last several years, and they have been very much range-bound. No, that doesn't mean that inflation might not be high or maybe low over the years, but it means the market trusts the bazooka at the end of the day. You, I, this audience, gold investors may think, my goodness, something is not going to work out with inflation in the long run. That's all fine. That's fine. It may not be, but it may all happen.

6:42But that's different from the market saying there is credibility in the Fed. And that is still there. And one of the things one can watch, not nicely because there are not many good measures out there, you can watch whether there's volatility in inflation expectations. And you saw a flare-up in volatility of that on quote-unquote liberation day a year ago. But it was on the fiscal side or executive side more specifically, not on the monetary side. And so it is related to the path where we are, right? We are spending a gazillion on the fiscal side. Obviously, businesses are spending a great deal on infrastructure using debt.

7:26And so there's more supply of debt and the cost of borrowing is going up. We are somewhat normalizing. The one thing to take it back to the Fed is, as anybody who has paid attention will know, forward guidance is not fashionable anymore. Well, the whole point of forward guidance is to compress the risk premium, to lower the cost of borrowing by telling people exactly what's going to happen. And so all else equal, that will put a little bit of upward pressure on it. That said, I don't think anybody thinks that interest rates would be very different anytime soon with or without forward guidance.

8:05It's just a bad habit that Kevin Walsh wants to get rid of. It's very different from forward guidance during the death of the financial crisis where rates were glued to zero artificially, right? The forward guidance we're talking about today is about a bunch of folks at the Fed doing things that they shouldn't be doing because it's a really bad habit, but it's not really a driving factor in the markets. It's a long answer, but I hope that clarifies it.

8:31Trevor Hall: No, and I do want to kind of just ask kind of a layman question here because most people don't directly go out and buy 30-year treasury bonds. You know, they may have it in retirement accounts through passive investings, 401k, whatever. And they also feel it. They feel the bond market every month, just mortgage payments, car loans, credit card payments. So can you, you know, somebody who's like just trying to make sense of this. They're not an economist, and they see this news, and maybe it's piqued their interest. Can you connect those dots for them? Why should someone who has never bought a government bond care deeply about what's been happening here in the middle of 2026?

9:16Well, it's two things. Mortgage rates for consumers, right? Your credit card debt is, well, it's got to be high if you have paid, but it's tied more to short-term rates. But it's the mortgage rates. and by the way we're just where historically we have been it's just that for a 20-year period mortgage rates were close to 20-year periods it was were compressed and so and of course home prices moved higher and now with the rates so much higher the direct implication is it makes it more difficult for people to move because you're if you own a house you're quote-unquote stuck in it because if you sell it and buy a new house you're going to be paying much more so why move and that reduces mobility of the labor force.

10:00On the big picture, the reason you care is because government has to pay a gazillion, that's a technical term, in interest expense, right? And there is the so-called Ferguson's law when you spend more on interest than on national defense, you have a problem. and so I've long argued that the biggest risk the biggest national security risk is deficits because when you have to spend everything on interest expenses you can't spend it on national defense or for what matters any other program now we are living in an environment where people are not talking about the deficit as much maybe on your program they are but that is one of the reasons why yields are going up because we'll get to this in a second, I suppose.

10:54Besant talked about what he's going to do in the bond market. He didn't talk about what he could have talked about is how the fiscal house is going to get in order, right? So we are patching up a system rather than fixing the root causes. Now, that's nothing new. Every administration has done that. But in the meantime, of course, the debt has been piling up.

11:16Trevor Hall: a great segue because I actually my very next question was literally is this really a fix but let me get to that to that quick short question because we need to kind of walk through the mechanics of what was announced this morning that has obviously move in the yield curve has moves in precious metals moves in the dollar uh tumbling after this stocks actually very little move uh which is kind of surprising. Maybe that's more of a tell. But walk me through what Treasury Secretary Besant actually announced this morning. He's buying back old long-term bonds and replacing that money with new short-term borrowing.

12:03Trevor Hall: So it sounds on the surface like he's helping. But what's interesting is like, this really caught my attention. He's buying back bonds with 1 % interest rates at 50 cents on the dollar and replacing them with short-term debt that currently yields 3.75%. So doesn't that mean the long-term, the bill for the government's eventually going to go higher? Well, the most important thing, I think, about the announcement today is the signaling. Markets are all about signaling. Today's announcement, without getting into the details at first, simply mean Besant cares. Besant thinks he shouldn't just talk, he actually wants to do something.

12:52Now, in case you haven't noticed, it's the middle of August, which means everybody and their dog is on the beach. Except for us. Except for us. And a few junior traders that are on their desk. And so if you want to influence the markets, you might as well do it in the middle of August. Also note that if you look at the press release that Treasury issued, they weren't precise. They said they will more than double. They just said more than double the bond repurchases without giving a precise number. Again, not being precise, which reemphasizes that this is about signaling more than anything else.

13:34And so, as you point out, right, they will buy longer-term bonds and pay for them by issuing short-term treasuries. Operation Twist, treasury style. But it is not Operation Twist because it is not the Fed. And that is hugely important. The Fed, if the Fed had announced a program like this, the orders of magnitude of the market reaction would have been dramatically more in my assessment. because the Fed can literally just print the money. The Operation Twist, QE, or anything of that sort is in its nature a political act. It is the very reason why the new Fed chair, Kevin Walsh, has been so much against those sort of things for the Fed to do.

14:24The place to do this sort of stuff is at the Treasury Department. It's a political choice with political accountability. We can talk about the wisdom of it, but the political support or backlash is supposed to be with Treasury. And it allows, if anything, one of the unintended consequences is that the focus is on Treasury rather than the Fed. And that gives Kevin Walsh a little bit more space to work on the reforms that he has in mind. This may all be arcane, but it ultimately matters. Kevin Walsh has been trying to get the Fed out of politics, whereas everybody has been saying, hey, you are so political, which is not the case.

15:08And so Besant, he cares about the bond market. Okay, I'll buy a few. And by the way, the program he's announced is not that huge. So the market reaction, especially in the precious metals has been pronounced. And I believe the reason it's been pronounced is again for the signaling, which means I'm willing to do something. And guess what? I'm willing to do more, more than double, right? If at some point I would need to do more. It's that signaling that matters. Now he can issue short-term debt. At some point, if he wanted to ramp up that program, you might push up short-term borrowing costs as well, right?

15:48If you just do a little bit, there's plenty of demand on the short end. It may not matter, but yes, it's converting what treasury has, the debt portfolio more into an adjustable rate mortgage, which isn't so great. But for the time being, the signaling has had an impact. Keep in mind that Besant is a trader genetically by training through his history. And that's what it shows, right? He shows a sense for the markets and is interfering in the markets by signaling he'll buy. doesn't fix the underlying issue, but he's had a market impact. And for today, people in gold appreciate it.

16:31Trevor Hall: You mentioned Operation Twist, and that was, like, as you said, a maneuver by the Fed 2011, 2012. So really coming out of the great financial crisis. Can you provide some context about, you know, the mechanics of that and how it was different than what we saw this week with the Treasury? Does it matter at all, or is it important for us to really keep our, you know, Well, to a nerd like me, it's hugely important. Everybody else should care, even if they don't as much. But the key difference is that the Fed has a printing press, has a bazooka. The Fed can create money out of thin air. They can do what the heck they want.

17:16I mean, that's not exactly the case. but more broadly speaking, and most of what the Fed does, most people don't really understand. And because they can do so much, because they have the bazooka, and the Fed is independent from Treasury, they should be very careful to stay in the swim lane. And of course, what happened in the financial crisis, they went out of the swim lane to try to rescue the world. And they got involved in ever more things. And Bernanke, who led many of these programs, he published a book at the end of the pandemic where he talked again about his toolbox. Those who've been around long enough will remember Bernanke talking about his toolbox, thinking about, oh, you can ever more micromanage the economy.

18:08And while, of course, a central bank can theoretically do that, it's a really bad idea because it attracts more political scrutiny. The moment you step away from monetary policy into fiscal turf, you attract politicians to interfere with you and to just kind of put it in simple terms. Monetary policy is about interest rates, is about the amount of credit, money in the economy. It is not about credit allocation. Pushing credit to a specific sector of the economy is a political act, not a monetary act. And that's what you have elected officials for. And the Fed under Bernanke, Yalen, and also Powell had kind of watered down those boundaries.

19:01And Operation Twist, to answer your question, was about buying your long-term bonds to depress the yield, the long-term borrowing cost, and in return, allowing shorter-term rates to go a tad higher. And when you do that, you're almost by definition inducing a capital misallocation. The idea was that you induce people to make more longer-term investments because long-term capital is less expensive. But the more the Fed micromanages all this, the more the Fed ultimately owns the problem. And again, it causes misallocation. It causes political interference. Now, when a politician does it, well, that's what they're elected to do, right?

19:52I mean, you're electing somebody to allocate money with fiscal policy. And so you can kick them out at the next election if you don't like it. It's very, very different than from a so-called independent central bank to do it. And the reason why Fed independence is important is because it lowers the cost of borrowing. If the Fed is not perceived to be independent, then interest rates are much, much higher. And it usually causes great damage to the economy. So all of this might sound a bit arcane, but it is hugely important for an efficiently run economy to everybody stay in the swim lane.

20:33Trevor Hall: The timing of all this is also very, very important. We're coming after a couple of weeks with the yen intervention by Scott Besant to support the yen. We've also data showing that three of the largest buyers of U.S. debt, Japan, China, UK, also have been reducing their holdings. We've seen the long end of the curve sell-off, rates moving higher. We were starting to wonder how much this could last. So if there's what I'm getting at here, obviously there's a lot of this, and we can go in with a fine-tooth comb axel on all those points. But on layman's terms, it's almost like the demand for long-term U.S.

21:15Trevor Hall: debt is becoming less and less. But it also puts a lot of pressure on the demand for T-bills and short-term debt. And now if you have a product to sell and you're seeing, or multiple products to sell, and if you're seeing one product not have demand and all of your chickens have to be in a different product, aka T-bills, what happens, are any signs that maybe even that type of demand for U.S. short-term debt might be waning as much as long-term debt? Does that make sense? First, to just talk about this once more briefly. Sure. For the yen intervention, it was again treasury. It was again about the signaling, right?

22:02If somebody intervenes in the currency, the best thing you can do is wait five minutes. But by one of the things Besson said, hey, maybe the equivalent of a swap line will be increased so that, by the way, the Japanese don't have to sell the treasury so that they can buy more yen. And by signaling that that swap line might be increased, then it's a signal to the speculator to use less leverage right it's about it's about signaling and Besant understands that he is a trader at heart he knows how that works and one of the things even though they need the Fed to agree to the increase in the in the swap line equivalent you haven't heard a beep from from the Fed because the Fed doesn't want to have anything to do with it now you can expect at the September press conference half the questions from journalists will be about it.

22:52But it's probably that these questions will probably be deflected, maybe a factual statement issued or something like that. Then just a clarification, the yields in the long run of bonds are higher, but it's not like people have run away from them. There is still plenty of demand. We get all excited about the rising yield, but there's plenty of demand. Yes, there's more competition. People, I've heard this several times in recent days on Bloomberg Radio, oh, there's competition from foreign bonds. The competition from foreign bonds is always there. It's always been there that a German bond is a competitor to US treasuries.

23:31You have the currency risk, you can hedge that out. It's always been there. Indeed, everything in the long end of the yield curve is a confidence game. And different administrations manage it a little bit differently. Now, the hottest thing in town are treasury bills. People, the market loves T-bills. But of course, there's a risk when you load up a little bit too much, maybe the wrong choice of words here, when you very much load up on it because you're just becoming very much dependent on the market function there. Now, the market is functioning on the short end of the yield curve, but it is raising eyebrows if the duration were to be shortened quite extensively.

24:18And the reason, of course, all this happens is because as a treasury secretary, he has an interest that the total cost of borrowing is contained. The best way, of course, to contain it is to spend a little bit less money, right? But that is not exactly what everybody is talking about. Right.

24:41Trevor Hall: And it's just, you know, we've had this interview on the calendar for maybe two weeks, I think, Axel. And so now that we're recording Wednesday, we've only had about six hours to really digest all this and try to put pieces together from all the other macro headlines over the last couple of weeks. But, you know, let's try to wrap this up before we kind of move on. What about the sustainability of this? What do you want to see here to maybe give you any sort of idea if this is going to work or if there's more bazooka capital to be coming to save the long end of the curve? What's the follow-up here that you want to see?

25:27I don't think it's going to work. I mean, this is why you do it in the middle of August. but it's a signal that Treasury is willing to do more along the same lines and that's why gold is reacting. You had the bond market sell off, you have liquidity light and so why not nudge it a bit, right? The same with the yen. Intervention works when there's a signaling effect that comes with it but Besant said at the time, ultimately the policies in Japan need to adjust And then he was praising the changes and reforms in Japan. Of course, he does that because there are buddies over there, and so he's not going to criticize the policies.

26:10But the same, of course, applies domestically, right? This intervention works for the day. Now we know that Treasury was willing to do things, but ultimately you've got to get your house in order. I mean, it's... Now, all that said, politicians are amazing can kickers. We saw that in the Eurozone debt crisis, right? And the U.S. has more ability to kick the can down the road than other countries do. And so there's plenty of demand for treasuries. But at the same time, with these sort of deficits that we're running with no end on the horizon, you shall be excused to be buying some gold.

26:53Trevor Hall: Does this give Warsh and company room to cut this fall? No. It gives Walsh the room to communicate what his priorities are, because the focus is a little bit more on Treasury. And so people will be focused a little bit less on why is the market moving up a few basis points or down a few basis points. The annual convention of central bankers in Jackson Hole is coming up the last few days of August. And Kevin Roach is expected to give a speech, and he can help explain an aspect or his entire philosophy or some other topic. He's not going to talk about the yen, I'm pretty sure. But the focus on the markets, on treasury, allows him to do that.

27:56Now, the market has taken down the expectations of a rate hike for September to, as we're talking, I think about 35%. And we had the three descents, obviously. The short-term interest rate path probably matters much less because everybody knows that, okay, maybe they need to hike a little bit unless the economic data aren't good enough. And so, are we going to be a quarter point higher, quarter point lower? it's not going to make a difference. It's going to make headlines and we all get all excited about it. I happen to think it is far more important to know that Besant is willing to step into the markets to move yields.

28:40That means we have an activist treasury secretary who is willing to do these sort of things. At the other end of the spectrum, we have a Kevin Walsh who is willing to do less. and that is just as important. And so Kevin Walsh historically has been a hawk. Now, if I understand him correctly, he would love to let the economy run all this investment that's happening, all the reshoring, allow that to run as long as inflation isn't an issue. Now, they're faced with a supply shock and that's not going to be over anytime soon. And so maybe they need to hike rates, maybe not. But of course, if they don't hike rates in September, which currently the market is pricing in, it is quite possible that in the next meeting then in October, which is just before the election, there might be another rate hike.

29:39And then that would be considered as political. And so maybe then they push it out to December. And of course, by the time we are in December, the economy might be very, very different from how it is today.

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31:27investors and industry watchers. You can find Going Nuclear on Apple Podcasts, Spotify, and at clearcommodity.net. Clear Commodity Network, digital news on the physical markets.

31:41Trevor Hall: Axel, let's pick up the conversation and move on to precious metals. Obviously, gold in reaction to this news today, up 2.5%. We'll see follow through through the rest of the week because this interview will air Friday morning. So who's to say what happens over the next 24, 48 hours? But what's interesting is that actually inflation expectations went down today and gold's moving higher. What is kind of the signal of precious metals after today? Is it the signal that you can basically describe that whatever it takes from the treasury? So gold has this wonderful ability to frustrate just about everybody.

32:27And I have often argued if there's one thing it's correlated to in the long run, is long-term real interest rates, long-term inflation expectations. In the sense that, hey, if the currency preserves its purchasing power in the long run, then why hold gold? And conversely, if the person power erodes, you may want to hold gold. Now, a year ago, that correlation wasn't there. But when the attack happened on Iran with the supply shock, that correlation snapped into place very strongly again, that historic correlation. and to many people's frustrations all asset classes were somewhat correlated when the price of oil went up the price of gold went down well they were both all related to the same sort of thing and by the way a supply shock in itself is a negative for gold as people realized is usually the reaction of policymakers to it with price controls in the 70s or checks to consumers that we had during the pandemic that then helped the price of gold.

33:46And so, as everybody knows, whatever happens in the Middle East has been dragging on while the markets get used to things. And then a few weeks ago, I noticed that the correlation of gold to oil, but also to inflation expectations was weakening again. And when that started to happen was just around when the price of gold and gold miners for that matter founded the footing again after the quite significant correction that we had seen. And so I mentioned that as the backdrop that gold has in some ways unshackled itself from the Strait of Hormuz. Now, I'm not saying that if there isn't a big flare up that we won't see any reaction at the price of gold, but the reaction has been weaker.

34:35and that's a good thing that the price of gold has been moving along and so now of course we see a new thing saying yep treasury secretary is willing to intervene in the markets to manage the long term yields or at least to influence them and so that says yep as a gold buyer that's great news right because they're not fixing the underlying issue they're focusing on patching things up. And so all else equal, I might want to hold some more gold. Now, my speech is regulated, so I have to add, I don't know what the price of gold is going to be tomorrow, but I can very much see why the price of gold and gold miners, of course, as well, have reacted quite favorably.

35:24Trevor Hall: And it's not just today where it started, right? We had an accumulation around$4 ,000. It dropped below that. And so you can make the argument, we've added$500,$600 onto the gold price in U.S. dollar terms pretty dang quickly. Is that too far too fast here, Axel? Is it too far too fast? Well, all markets have been volatile, right? All markets have been volatile. The price of gold in the long run, first of all, has zero correlation to equities and has a volatility similar to the equity markets. Except it's not stable, right? The correlation morphs in and out, sometimes positive, sometimes negative, sometimes near zero.

36:08And the volatility can spike. And anybody who has been in gold long enough knows we can have these very substantial moves. And so is it too fast? Well, what do you like? I mean, who is it to say, right? I mean, the market does what it's going to do. It's one reason why, personally, I don't like to trade gold in the short term because I'm a simpleton, right? I'm a long-term investor. If somebody thinks they have a crystal ball and an amazing trading strategy, go for it. What I tend to tell people, you don't need to have a good investment strategy, but have a strategy. And because gold has fairly basic fundamentals, it attracts a lot of technical investors.

36:58And it actually becomes a self-fulfilling prophecy that it might actually work. So I'm not saying it's a bad thing. I'm just saying that, yep, we see these very strong moves. And it's, in my assessment, impossible to time. But if somebody has a crystal ball and can do it, good for them. Yeah.

37:17Trevor Hall: Well, back in January when we were at 5 ,500 per ounce and the gold market, like if we were looking at a fear and greed in the gold mining index, that thing was like about ready to blow red, right? And so we were seeing there was all things in the making for a potential very violent sell-off, which we ended up having. But on the way up, we continued to have the conversation that the industry, the sector, not only just precious metals, but the miners as well. So little capital had been coming into this sector. There's just it had not been invested in as much. Despite the big run up, people were maybe trading it and using the momentum.

37:58Trevor Hall: But it wasn't necessarily part of everybody's portfolio, as large part of the portfolio as, say, maybe the likes of you and I. Now that we have had that digestion and we've seen this$500 addition to the gold price and we've seen the gold miners bounce, is that dynamic at all changing, do you think? Do you feel like more people are recognizing that was a good dip to buy? So one of the things that happened in the run-up to the war in Iran is that speculators had firmly embraced gold miners again. Speculators are not very loyal investors. The traditional gold bug is a speculator. But then meme stocks came along.

38:43SPACs came along. Cryptocurrencies came along. And so it was only at some point earlier in 2025 that speculators had come back in. And then, of course, with the onset of the war in Iran, volatility shot up, which for the speculator means you need to delever. And so they suddenly became very quiet. Whether those guys have come back, I'm not sure. because there are always some new opportunities for that there to go. But they're not very loyal. They'll come back. They mostly add to the noise. One thing that we saw last year is that portfolio managers of non-specialist funds started attending analyst briefing of mid-tier mining companies.

39:39And I think that's potentially very meaningful. those guys are very long-term in their processes. And so they're looking at the space. They saw the heightened volatility. I would not be surprised if some of those guys are sticking around and are deploying capital. And so in that sense, it's a broadening. The long-term gold investor has always been there. Although, especially last year, yes, the price of gold was going up, but there was not a frenzy. I may have mentioned on your show before, the mints didn't produce many coins because with the high price of gold, people were selling their gold with fairly little demand from the mints.

40:27And you'll see that in the premiums of some of the coins that should have a much lower markup than they have is the premiums are elevated because there wasn't enough produced in some of the newer coins. on the mining side. Well, it was a good environment and it continues to be a pretty decent environment to raise capital. The price of gold is there. The profitability is there. People have seen that even with these elevated prices, these companies can execute. And by the way, in any bull market, there tends to be inflation on the wages, on input costs. governments want to have higher taxes. So some of that has been happening.

41:14People wouldn't expect that the one Iran induces some of that, but still the profitability is far higher than it has been in past cycles. And in my assessment, at least, that's not properly reflected in the prices of many of the miners.

41:31Trevor Hall: Yeah, it's, you just kind of wonder if it's going to take some sort of shakeout from the high-flying growth stocks finally to bring capital back to this sector? Some people were frustrated. Hey, why didn't gold rally when there was a crisis? Well, the reason why gold rallies in the crisis and miners is because of the anticipation that a central bank will lower interest rates. And so if you're talking about a crisis in AI, the key difference to 2000 is that a lot of the growth has been debt induced with the circular financing and say if or when there's a downturn I would expect the Federal Reserve to have to lower rates to to cushion that bust a little bit more so than after 2000 but I'm not going to predict that that's going to happen tomorrow it's going to happen eventually I have no idea whether we're in 98, 99, or 2000 with regard to the AI boom.

42:32A bubble is an investment that's booming in which you're not participating. Greenspan figured out in 97 that irrational exuberance was a bit premature because there's a lot more irrational exuberance that was able to take place. Now, that doesn't mean I'm encouraging people to pile into what I might think are overvalued stocks there. The other thing is that AI investment is very capital intensive and mining is as well. In that sense, it's a much more level playing field than it had been in other economic cycles. When you can invest in software, when software was all hip, it was a low barrier to entry.

43:22and after 2011, we had these many years of a bear market and it was because gold miners couldn't compete with very attractive returns in the tech sector. I think today's environment is a little bit different that miners do get attention.

43:38Trevor Hall: Let's stick with the investment in the gold miners and actually, if you don't mind, shifting to something that's somewhat pretty personal for you and that would be the ASA Gold and Precious Metals Fund. It's non-diversified closed-end fund. Jamie Holman and I spoke about this about a year ago, I think, and really we obviously have some clarification, but you built ASA into the best-performing gold fund in the category for like seven years. So like before the market actually turned when we were still in real bear market territory. until recently the board had let you go it's it's the timing of this is just kind of crazy to me because this is all happening and the trade that you've spent years positioning for is now really playing out so i just really i want to ask you directly what is going on with that fund today knowing that you have taken uh i guess a quote-unquote leave of absence i guess you could say So, yes, so from April 2019 through June 2026, Merck Investments managed that closed-end fund.

44:53And you're right, we were literally the best-performing fund, both in absolute terms, but also on a risk-adjusted basis. On June 30th, the board terminated our advisory agreement. The board has not announced what its plans are. It's currently internally managed by an investment committee. By the way, nobody on the investment committee has mining expertise. What we do know is that there is an activist investor, Sabah Capital, that owns 32 % of the shares. They have submitted several forms that are by regulation, forms that they submit in which they say what they would like to do. Basically, they would like to liquidate the portfolio and transform this into a business development company that is no longer doing anything in the mining sector.

45:44But what exactly is happening is not known. I set up a website, saveasa.com, where I'm disclosing what I assess there to be happening. I'm looking for style drift. There's a mandate, right? They have to invest based on the mandate, at least 80 % in precious metals miners.

46:09and one of the things we have is this dashboard that shows what they've changed. I continue to be a large investor in that fund and one of the things about closed-end fund and one reason why I'm still an investor is these funds tend to trade at a discount. That discount has blown out but to the extent that they might have a tender offer they might allow people to get out at what's called at NAV and then you can quote unquote capture the discount that's what historically what the activists do it's a little bit more complicated than that especially if they want to restructure things but there is a basically there is an upside in that from my perspective for investors who have been in the fund and who might be listening part of the reason I put up this website is as a call to reach out to to us because we are exploring new ideas of what we can do, given that we're not managing ASA, if people want to continue to be investing with us.

47:10That's pretty much what I can say about it. One of these days, maybe I'll make a movie about it. It's been a most interesting journey. Let's just put it this way.

47:21Trevor Hall: Well, I think you put it kindly. I mean, blown out, sure. I mean, it's trading like 17 % below the actual value of what the fund is actually holding. I mean, that's… They're the discount masters, right? So, what happened was when we took on the fund, it was managed like many closed-end funds. We dramatically increased the transparency, including publishing holdings on a monthly basis, holding webinars. My view has always been the more you communicate, the more the market knows what you're doing. And that helps the discount. and ultimately want to attract investors. You're not going to make everybody happy, but you want to communicate what you do and you want to attract investors and tell them what it is that you're doing.

48:05And then, of course, in the background for a few years now have been an activist that didn't fully communicate what they were doing. And the discount was around a little over 10 % late last year. And then early this year, Sabah, that's the activist, disclosed what they would like to have done. And the discount started widening. And then on June 30th, after we left, the discount really started to go higher. And so that's where we are. I continue to believe that the investors in the fund would be well served if the fund just focused on what its mandate is, rather than thinking about restructuring and all kinds of other things.

48:52but for the time being, I'm an outsider looking in.

48:56Trevor Hall: So for those shareholders who are maybe feeling stuck right now, why can't they just sell and move on? Of course they can, and many have. It's part of the reason, of course, why the discount has gone wider. And that's the sort of thing that happens when an activist comes in. The established shareholders are selling, and then others are coming in that are just playing that discount. The key difference is that unlike, and the most closed-end funds are fixed income funds, right? And there you can play those discount games, but anybody who is invested in gold miners knows that the returns are all over the place.

49:31So you've got to be willing to take on that equity risk. Now, Saba, they haven't disclosed it to the public other than in their 13F filings. They actually appear to be hedging their exposure. So they don't give a darn about what the miners are doing. but most other they call themselves event-driven investors that wait for a tender offer they don't they're not as sophisticated they may not be hedging themselves so they're not as many that have come in maybe than than my others might have expected um i happen to be okay um with the mining risk absolutely and then on top of that i that's kind of if if they have a tender offer then i can capture the discount and i'll i'm not going to give that away by selling my shares.

50:16But yes, I've talked to many investors and some are sticking around and others are selling, of course. All right.

50:23Trevor Hall: Well, and what I'm about to say, I mean, it's going to sound like an endorsement, but I don't want to make it an endorsement, but it's obviously been proven like for seven years. It's been a great outperformer and it's been a wonderful tool for people who maybe want to invest capital in precious metals and the miners who maybe do not have the time to go deep dive and have the conversations with miners and do the due diligence of what it takes to actually be successful, the ASA Gold Fund has been a great resource for those people to allocate. So if that is not the instrument it once was, where do investors who still want that type of exposure, that want that type of access without doing the due diligence themselves, where do they go now, Axel?

51:09Trevor Hall: What is available that maybe still fits? Well, that's one reason why we encourage people to reach out to us. We don't have a new strategy to offer yet. We have been listening to investors what they want. And so anybody who is interested should reach out to us and also tell us what they would like to see. We're not going to be able to exactly replicate what ASA has done. It's a unique vehicle. but there are and it also depends on the types of investors there have been a huge range of investors investing ASA but we have been listening we have ideas by the way the moment that we go from idea to implementation I might not be able to talk about it as much anymore but for the time being I'm very much interested in hearing from anybody of what they're interested in okay so how are you occupying the later half of your summer what's what's what's what's going on are you floating of your own personal capital around?

52:10Trevor Hall: Axel, did you buy this dip here in June, July? On the investment side, as I indicated, I have a boatload of mining shares. Very happy with those. I have a boatload of gold. One thing I have done is not deployed cash, so to speak, that I have generated. on the, I have a lot of gold and gold miners, but I haven't, I have a little bit of traditional investments and I haven't allocated more capital there. So, story for another call, but we, my family office does a few other things, including forest and other things. By the way, a great way to lose money is a vignette. I do, I do, I do spend time That's a fun way to lose money, Axel.

53:04Yeah, so that's my weekend escape. So I do a few other things as well. Yeah.

53:11Trevor Hall: Well, if you ever need me to come help you lose money in your vineyard, I'm happy to come. Please, please, please. Do what is necessary. Okay. Axel, thanks so much for your time. Despite we did have a little bit of technical difficulties, I think we worked through those as best as we can. I appreciate your time. Thanks so much. Listen, I do, you know, funds and markets are a funny thing, and it doesn't always land the way people expect them to. But I think you have taken what you were handed with as much grace as one could expect here, Axel. So appreciate your time, your insights, and all the knowledge that you shared with us for the last 60 minutes.

53:52My pleasure. And by the way, we do still manage about a little over$2.5 billion on the precious metal side. but in any case I mentioned saveasa.com merkinvestments.com is our website and at Twitter at Axel Merck is my handle so reach out to me stay in touch and we'll hopefully talk again in a few months yes Axel absolutely alright take care

54:17Trevor Hall: the information presented should not be considered investment advice mining stock daily and its affiliates are not responsible for any loss arising from any investment decision in connection with the material presented herein. Please do your own research or speak with a licensed financial representative before making any investment decisions.