Power now drives markets: Axel Merk warns post-WWII era is over

• U.S. federal deficit hit $1.8 trillion in FY2025, pushing debt to 99.8% of GDP, with net interest payments surpassing $1 trillion for the first time, creating a 'mathematical feedback loop' forcing more debt issuance
• Despite gold finishing 2025 up 67% (strongest since 1979), Merk warns mining stocks face jurisdictional risks from government intervention, with North American gold production projected to decline 2% in 2026 while costs rise to $1,600/ounce
• Copper's rally reflects physical scarcity from geopolitical supply chain disruptions, with analysts estimating a refined copper deficit exceeding 300,000 tons in 2026, supporting Merk's view that 'you cannot print copper'

Market Summary: Power Now Drives Markets - Post-WWII Economic Order Collapses

Key Thesis

Axel Merk, President of Merk Investments, warns that the post-World War II economic order has collapsed, replaced by "state activism" where power—not efficiency—drives capital allocation. Traditional market signals like yield curves and P/E ratios are failing as geopolitical forces reshape investment dynamics.

Key Market Developments

Commodity Surge:

• Silver breached $80/ounce (historic high)
• Copper tested $6/pound
• Gold finished 2025 up 67%, strongest performance since 1979

Fiscal Crisis Metrics:

• U.S. federal deficit: $1.8 trillion (FY2025)
• Debt-to-GDP: 99.8%
• Net interest payments exceeded $1 trillion for first time in 2025, creating unsustainable debt servicing loop

Central Bank Activity:

Central banks purchased 1,045 tonnes of gold in 2024, with robust demand continuing through 2025 from Poland, India, and Turkey. This diversification away from sovereign debt establishes a price floor independent of real interest rates.

Sector Warnings

Mining Stocks:

Despite gold's rally, Merk cautions against mining equities due to:

• Rising jurisdictional risks and government intervention
• 2% projected decline in North American gold production (2026)
• All-In Sustaining Costs rising to $1,600/ounce
• Recent state control measures in Mexico and Mali threatening foreign operators

Copper Market:

Refined copper deficit estimated at 300,000+ tons in 2026, driven by geopolitical supply chain disruptions and physical scarcity, not speculation.

Investment Implication

Merk advises investors to abandon post-WWII frameworks, prioritizing physical resource access over paper derivatives in this volatile, power-driven paradigm.