Axel Merk
Merk Hard Currency Fund
We get a lot of questions on how gold will perform in 2017. While we have no crystal ball, we thought the tidbit below might be of interest to you as you evaluate whether adding a gold component might provide valuable diversification to your portfolio.
Please consider the chart below:
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Since Nixon took the US dollar off the gold standard in 1971 there have been seven Presidential transition years, i.e., years when a new president was inaugurated. Those years were 1974, 1977, 1981, 1989, 1993, 2001, and 2009.
Looking at the data, gold achieved above average returns during those calendar years, +14.8% in Presidential transition years vs an overall average of +8.4%. Perhaps equally important is that those have been years when the S&P 500 greatly underperformed its average over that same time period, -0.9% in Presidential transition years vs an overall average of +9.0%.
The S&P 500 on average was negative for those seven calendar years of Presidential transition. The average return in Presidential transition years is +14.8% for gold and -0.9% for the S&P 500.
One possible theory as to why this might make sense is policy disappointment of a new incoming administration, the high hopes of the newly elected administration may be tougher to achieve in practice, leading to weakness in equity markets. In addition to policy disappointment may be a general sense of policy uncertainty as the rules of the game potentially change under a new administration, which might boost gold as a safe haven.
One caveat is that seven transitions is a small sample size; the reason we limit ourselves to transitions since 1971 is because before gold was pegged to the dollar in one form or another for much of US history.
We wish you a prosperous 2017.
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The Merk Hard Currency Fund is a no-load mutual fund that invests in a basket of hard currencies from countries with strong monetary policies assembled to protect against the depreciation of the U.S. dollar relative to other currencies. The Fund may serve as a valuable diversification component as it seeks to protect against a decline in the dollar while potentially mitigating stock market, credit and interest riskswith the ease of investing in a mutual fund. The Fund may be appropriate for you if you are pursuing a long-term goal with a hard currency component to your portfolio; are willing to tolerate the risks associated with investments in foreign currencies; or are looking for a way to potentially mitigate downside risk in or profit from a secular bear market. For more information on the Fund and to download a prospectus, please visit www.merkfund.com. Investors should consider the investment objectives, risks and charges and expenses of the Merk Hard Currency Fund carefully before investing. This and other information is in the prospectus, a copy of which may be obtained by visiting the Fund's website at www.merkfund.com or calling 866-MERK FUND. Please read the prospectus carefully before you invest. The Fund primarily invests in foreign currencies and as such, changes in currency exchange rates will affect the value of what the Fund owns and the price of the Funds shares. Investing in foreign instruments bears a greater risk than investing in domestic instruments for reasons such as volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. The Fund is subject to interest rate risk which is the risk that debt securities in the Funds portfolio will decline in value because of increases in market interest rates. As a non-diversified fund, the Fund will be subject to more investment risk and potential for volatility than a diversified fund because its portfolio may, at times, focus on a limited number of issuers. The Fund may also invest in derivative securities which can be volatile and involve various types and degrees of risk. For a more complete discussion of these and other Fund risks please refer to the Funds prospectus. The views in this article were those of Axel Merk as of the newsletter's publication date and may not reflect his views at any time thereafter. These views and opinions should not be construed as investment advice nor considered as an offer to sell or a solicitation of an offer to buy shares of any securities mentioned herein. Mr. Merk is the founder and president of Merk Investments LLC and is the portfolio manager for the Merk Hard Currency Fund. Foreside Fund Services, LLC, distributor.
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