(Mike Maharrey, Money Metals News Service) With bond yields on the rise and markets penciling in another Federal Reserve interest rate hike this year, a lot of people are selling their gold.
Axel Merk doesn’t think you should.
Merk is the founder of Merk Investments, and he has a reputation as an even-handed analyst, not prone to getting caught up in the latest headline. In a recent interview with Kitco News, Merk said he thinks Federal Reserve Chairman Kevin Warsh is doing a good job of “restoring discipline” and pulling away from politics at the central bank. He also praised Warsh for hiking rates at the September meeting.
“It was time to raise rates; he raised the rates.”
But Merk insisted that “good” monetary policy only goes so far when governments show no fiscal restraint.
“If you have bad fiscal policy, good monetary policy can only do so much. With bad monetary policy combined with bad fiscal policy, you can make things dramatically worse.”
There is certainly a lack of fiscal restraint.
The U.S. government has managed to pile up more than $40 trillion in debt. While this eye-popping number should raise red flags, the borrowing and spending continue unabated.
With one month remaining in fiscal 2026, the Trump administration has spent $6.81 trillion, 2.2 percent more than in the same period in 2025.
A 2.2 percent increase in spending might not sound significant. But weren’t we told there would be spending cuts?
And Uncle Sam isn’t the only one with a spending problem. Government debt in the eurozone has ballooned to over €14 trillion (USD $16 trillion).
Merk said, “At the end of the day, fiscal policy is gonna drive things.”
And that means you shouldn’t sell your gold just because you see interest rates climbing.
Merk said higher interest rates could theoretically impose more discipline on lawmakers, but he is skeptical that elevated bond yields alone will force Washington to address government spending.
Merk is right.
Politicians aren’t incentivized to deal with long-term problems like spending, especially if doing so will cause their constituents’ pain. Keep in mind that a politician’s number one goal is getting reelected. You don’t do that by making life harder on voters. But any meaningful steps to rein in spending will cause short-term pain. Programs will need to be cut. It’s easier for a politician to kick the can down the road and let somebody else deal with the debt fallout.
Given the political incentives, more spending in the future is far more likely than less.
So, even with what he considers solid monetary policy and a necessary pivot to higher rates to tamp down inflation, Merk said he is still bullish on gold, saying, “I do like my gold even with a Kevin Warsh Fed.”
“We got a fiscal mess. How do you diversify? And gold may well play a role in that.”
Merk also said a potential AI bust could also prove bullish for the yellow metal, noting that debt is the primary driver behind the artificial intelligence investment boom. If the bubble bursts and the economy goes into a tailspin, the Fed will be forced to reverse its tightening cycle.
“When you have a debt-financed boom that’s followed by a bust, in order to mitigate the fallout from the debt that’s left over, you tend to have lower interest rates.”
I’m not nearly as sanguine about the Warsh Fed as Merk, but even if you think the central bank is on the right track and will stay true to its inflation-fighting cause, now is not the time to sell your gold and silver!
Mike Maharrey is a journalist and market analyst for Money Metals with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
