Axel Merk to Moneynews: US Dollar Is the 'Last Domino Standing'

The dollar is one of the few financial assets to thrive since Federal Reserve Chairman Ben Bernanke indicated last Wednesday that the Fed may taper its quantitative easing soon.

But the dollar's strength won't last long, Axel Merk, chief investment officer of Merk Investments, told Newsmax TV in an exclusive interview.

The Dollar Index, which measures the greenback against six major currencies, gained 2 percent from Tuesday's low through Friday.

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"In many ways, the dollar is like the last domino standing," Merk said. "Remember, in 2008, there was a flight to the dollar as well. But the other asset class that did well was Treasurys. Well, this time around, there is no hiding in Treasurys."

The yield on the 10-year Treasury note rose from 2.54 percent Friday to 2.59 percent Monday, the highest level in almost two years.

"Some people are saying the dollar's going to be doing great; we have all of this tightening happening at the Fed and what-not," he noted. "Well, guess what? We just think that is the last bubble out there."

While Bernanke sees a smooth exit from quantitative easing, "we also like to have cupcakes for dessert," he quipped. "The challenge is, of course, his exit won't happen. The market says we don’t want this exit because, guess what? We are addicted to this easy money."

Editor’s Note: Put the World’s Top Financial Minds to Work for You

The dollar is benefiting from "liquidity" now, not "quality," Merk explained. "In the U.S., the great thing is you can take your money out. That's why people are putting money in in times of crisis."

Still, the euro has held its own against the dollar over the last year, he stated. Indeed, it gained 4.8 percent against the greenback during that period.

And the dollar's recent strength doesn't help most U.S. investors anyway because their investments are always denominated in dollars.

Meanwhile, the recent severe correction in gold represents an attractive buying opportunity, Merk suggested. Gold has plunged more than 20 percent so far this year, trading at $1,275 Monday.

"We like it when volatility is up," he said. "When gold goes up for 12 years in a row ... at some point, somebody's going to sell, and then everybody piles in with a vengeance. It's more symptomatic of the markets in general that when liquidity dries up, we can plunge."

As for the long term, "we're quite bullish on gold simply because there's too much debt in the world," Merk explained. "Europeans may try austerity, but in the rest of world, we'll use the printing press."

And it's not as if there's a more attractive and secure investment. "You've got to realize there is no safe haven in the world left," he stressed.

"And that's one of the reasons we argue you've got to diversify to purchase something as mundane as cash. If you hold cash, dollar cash, your purchasing power is at risk. So gold is one of the tools you may want to have in your toolbox."

Editor’s Note: Put the World’s Top Financial Minds to Work for You


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