So what’s the secret sauce?

Those who have followed me for some time know that I rarely focus on performance alone. Throughout my career, I have cared far more about the investment process and macro context. Over time, performance follows.

Some History

ASA (or the “Fund”) was founded in 1958 to provide U.S. investors access to South African precious metals mining companies, at a time when direct investment in these companies for US investors was not possible.

ASA was a standout performer during the financial crisis, reaching over $900 million in net assets in October 2008. Three successive tender offers and a protracted bear market later then drove, assets to a low of $190 million in 2018, by which point ASA had become a sleepy, somewhat index-hugging portfolio with only a 3% portfolio turnover.

The Fund was internally managed, and the Board sought to appoint an external manager, in part to move from a high fixed cost internal management model to a more industry standard external adviser compensated on a percentage of assets managed.

In April 2019, shareholders of ASA appointed Merk Investments LLC (“Merk”) to manage the fund and Peter Maletis – who had spent a decade at Franklin Templeton’s gold fund – was appointed as portfolio manager.1

Assets at the time were approximately $230 million. Peter repositioned the portfolio quickly, and performance accelerated in the early period. Later, the Fund faced headwinds during the “higher for longer” environment which compressed some valuations, especially those of the more junior mining companies.

In 2022, Jamie Holman, previously the number two at Invesco’s precious metals fund, joined Merk and helped position the Fund for what was to come.

As of this writing, ASA has grown - net of dividends, share repurchases and expenses - to $1.5 billion as of May 15, 2026.

The Secret Sauce

ASA employs a bottom-up fundamental analysis and relies on detailed primary research including meetings with company executives, site visits to key operating assets, and proprietary financial analysis in making its investment decisions. Risk is managed through regional diversification at the asset level and a deep understanding of geopolitical risks. ASA employs a long only concentrated strategy with low turnover.

The scarcest resource in precious metals mining is good management. While other factors matter, developing and operating a mine successfully depends on management that understands not only the geology and operations, but also the needs of all stakeholders. Merk believes management that works constructively with all stakeholders is more likely to succeed.

How does Merk identify good management? We often describe Merk’s investment approach as “venture capital light”. In practice, this means backing proven teams – those with a track record are more likely to secure funding than unproven teams, even those with geologically promising resources.

Even larger mining companies are steadily depleting a finite resource. While a return of capital through dividends is welcome in the current environment when margins are high, we want the money to be re-invested into additional exploration, adjacent land, or selective acquisitions – particularly when led by management teams we trust.

Notably, we also look for catalysts beyond a potential appreciation in the price of precious metals. This is why Merk often invests early in exploration or - these days - development companies. Much like venture-funded tech businesses, these companies get funding for only a year or two before they return for more capital. To the extent they meet their targets, larger investors are joining in future funding rounds at often significantly higher valuations. We have helped “institutionalize” numerous mining companies - our largest holdings were small development companies just a few years ago.

Good management teams attract investors. Understanding a company’s investor base is therefore critical, particularly in assessing whether capital will remain available in the next funding round.

ASA’s closed-end structure provides relatively patient capital, without daily inflows or outflows. At the same time, it requires active capital allocation - recycling capital from existing positions into new opportunities, while balancing conviction and diversification.

Different from high tech VC investing, when a company does not succeed, the gold in the ground is still there, meaning a new operator might be able to jump start a project.

Unlike ETFs, we can participate in funding rounds, often with warrants attached.2 Warrants are helpful tool for a company as it provides a path for future funding; and they are great for investors that receive the right to provide further funding at set price.

Ultimately, the “secret sauce” is our investment process.

The Performance

Below is ASA’s performance relative to indices since April, 2019, when Peter Maletis started managing the Fund.

You will see a reference to the performance of the net asset value (NAV), as well as that of the share prices (Equity).

Data as of April 30, 2026. Source: Bloomberg

Peer performance over various periods:3

ASA’s ranking over various periods:

ASA’s Equity returns are included in the rankings above. For example, since April 1, 2019, ASA’s NAV ranks #2, with only ASA’s Equity ranking higher. ASA’s Equity outperformance relative to NAV reflects shareholder gains from both portfolio performance and the narrowing of ASA’s share price discount to the NAV during much of Merk’s tenure.

If you divide the returns by the risk (volatility), the Fund continues to come out on top over the seven years that Merk has managed ASA.

Outlook

In 2011, Marc Andreessen published his famous essay “Why Software is Eating the World.” Software provided the promise of low barrier to entry, high margin products. Why would you invest in mining when you can invest in software? The bull market in precious metals was just turning into what would become a protracted bear market at the time.

Fast forward to today, and “AI is eating software.” A current hallmark of AI, however, is that barriers to entry are high (massive investments are required) and margins uncertain. For the first time in a long time, there is a level playing field between technology, industrial and mining investments. Precious metals mining also has high barriers to entry and the potential for high margins. This shift is reflected in growing interest from generalist portfolio managers, particularly in mid-sized mining companies. Given the relatively small size of the sector, increased participation can drive meaningful valuation re‑rating.

This is not the time and place to make a prediction about the price of gold, and this is not investment advice - the precious metals mining space is a highly volatile space and not for everyone. But given that interest in the space has been broadening, our track record demonstrates that traditional bottom-up active management can succeed.

I’m incredibly proud of my team that has enabled this successful investment approach. An independent analysis by Broadridge concluded that ASA’s outperformance has been driven not by excessive risk-taking, but rather by the discipline of the investment approach itself.

ASA recently announced the extension of Merk’s advisory agreement for 90 days through June 30, 2026.

Follow me at x.com/AxelMerk, and feel free to reach out with questions.

Axel Merk
President & CIO, Merk Investments

Certain Tax Information: ASA is a “passive foreign investment company” for United States federal income tax purposes. As a result, United States shareholders holding shares in taxable accounts are encouraged to consult their tax advisors regarding the tax consequences of their investment in the Company’s common shares.

This report was prepared by Merk Investments LLC (“Merk Investments”),and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Merk Investments makes no representation regarding the advisability of investing in the products herein. The information contained herein reflects Merk Investments’ current views and opinions with respect to, among other things, future events and financial performance. Charts, graphs, and tables are provided for illustrative purposes only. Any forward-looking statements contained herein are based on current estimates and expectations. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute investment advice and is not intended as an endorsement of any specific investment. The information contained herein is general in nature and is provided solely for educational and informational purposes. The information provided does not constitute legal, financial or tax advice. You should obtain advice specific to your circumstances from your own legal, financial and tax advisors. Past performance is no guarantee of future results.

Why is “Fed independence” important? Because the Federal Reserve is the guardian of the Cookie Jar. The Fed can create credit out of thin air, with the stroke of a keyboard. Its resources are effectively unlimited—that’s the Cookie Jar. History has shown when politicians gain access to the Cookie Jar outcomes can be disastrous.

But critics push back.

• “Independence does not mean lack of accountability.” Some may view Powell’s leadership at the Fed is so poor that “between four and six Governors and [regional] Presidents have to resign…if this happened at a Wall Street firm, the CEO would be out,” said Treasury Secretary Bessent in a CNBC interview on January 20, 2025, referring to the Federal Open Market Committee (FOMC).

• Bessent added that it would be a mistake for Powell “to put his thumb on the scale” by attending Supreme Court hearings related to the administration’s attempt to fire Governor Lisa Cook over alleged mortgage fraud.

• Other critics argue that the Fed has made colossal mistakes—most notably turning the recession of the 1930s into the Great Depression, fueling the Great Inflation of the 1970s, and, under Powell’s leadership, contributing to the inflation surge toward the end of the pandemic.

Let me untangle these issues and suggest a constructive path forward.

What is monetary policy?

Monetary policy concerns interest rates, the amount of credit in an economy, and the money supply. It is not about allocating credit to specific sectors—that is fiscal policy.

Since the 2008 financial crisis, the Fed has veered away from pure monetary policy and dabbled in fiscal policy. In our view, this is problematic because fiscal policy should be conducted by elected officials accountable to voters; when the Fed crosses that line, politicians take notice and based on past observations, begin to meddle.

Consider what we have identified as the original sin: the Fed’s purchase of mortgage-backed securities (MBS). It sounds innocent enough, right? After all, as the Fed has argued, it only purchases securities of government-sponsored entities, so they are quasi-government bonds. But it does not change the fact that by purchasing MBS, the Fed is attempting to pick winners—in this case the housing market. Because the transgression is considered minor by many, few cry foul. You may have noticed that President Trump recently instructed Fannie Mae to purchase MBS to help lower mortgage costs. Unlike Powell, President Trump made a political decision with political accountability. One can still question the wisdom of the decision: the goal of buying MBS is to lower borrowing costs, increase demand and push home prices higher. However, this may fail to address the root causes of affordability. Now it pivots to a political debate, which in our opinion, is the appropriate framework.

The Fed did not stop with MBS purchases. In its zeal to expand the “toolbox,” as former Chair Bernanke himself described it, the Fed deliberately developed ever more ways to micromanage the economy. Supporters argue that this approach reduces the likelihood of a recession. That may be true to the extent that insulating ever more actors from failure lowers near-term economic volatility. During the pandemic, the Fed even provided loans directly to businesses—an illustration of how far this philosophy has been taken. The core problem with these efforts is that they invite political scrutiny.

In our view, the Fed’s decision to pay interest on reserves, introduced during the financial crisis, continues to have especially poor optics: it involves paying banks billions of dollars each year.

It is in this context that one may say the Fed has only itself to blame for the current political scrutiny. Yours truly has complained about the Fed’s transgressions ever since the beginning of the financial crisis. It appears that Ivory-tower academics and Chair Powell still don’t get it. We believe reform at the Fed is long overdue, and Powell is not the person to lead it. He has blamed others for failures at the Fed, including what may be the most consequential mistake: maintaining an overly accommodative monetary policy in the face of a supply crunch.

But no—Powell should not be fired. Hear me out.

Fed Independence Matters

In a nutshell, Fed independence lowers borrowing costs for governments, businesses, and individuals—and is more likely to lead to lower inflation.

Let me start with the abstract explanation: when the Fed is independent, the Chair’s words have the potential to move markets—including calming them in a crisis. If there is credible political interference, then instead of using words alone, the Fed may need to intervene directly in markets—for example, by cutting rates—to achieve the desired effect.

A more illustrative explanation is that when the Fed loses independence, markets risk becoming unhinged and inflation might soar. We don’t know that for certain, but if history is any guide, really bad things may happen. If markets believe the Cookie Jar has been captured and opened by politicians, investors may vote with their feet. The result could be sharply higher bond yields, higher inflation, and eventually higher unemployment—along with the rise of increasingly populist politicians promising quick fixes.

We look at market gauges to assess whether markets are taking these jabs at the Fed seriously. Keep in mind that there is a tradition which long predates Trump to blame the Fed for the ills in the economy. The most important gauge may be long-term inflation expectations. Of course, we cannot know what inflation will be in the long term. That is precisely the point: these measures are confidence indicators in the Fed. The more tangible the indicator, the more difficult it is to disentangle it with other influences. Take the rising price of gold—I could write volumes about its causes. A loss of confidence in the Fed could be one factor, but only one of many. Or take rising bond yields: in an analysis last March, I attributed them to tariffs (tariffs don’t just impact the flow of goods, but also the flow of currency, reducing the demand foreigners have for US Treasuries); as such, while bond yields may well rise if there is Fed interference. There are many cross-currents that drive bond prices. Indeed, long-term bond yields would be expected to rise when policies increase a country’s growth potential.

Fed Governor Cook

As I write this, the Supreme Court is considering the administration’s attempt to fire Fed Governor Cook. Let me touch on the constitutional issue. The Coinage Clause (Article I, Section 8, Clause 5) grants Congress—not the President—the authority to coin money and regulate its value. That is why the Supreme Court has said the Fed is special.

In practice, matters are messy. Because Congress decided that the President nominates the Fed Chair, some argue the Chair should therefore serve at the President’s pleasure. Constitutionally, the proper path to remove a Fed Chair is through impeachment. By extension, the same logic could apply to Fed Governors.

But of course, nothing is simple in practice. Notably, the Fed’s role extends into areas such as banking supervision, parts of which arguably fall within the Executive Branch’s purview. In an ideal world, the Fed would focus strictly on monetary policy, with regulatory oversight handled separately.

Markets are watching closely because if the Supreme Court sides with the administration, there is a serious risk that investors will question whether the Fed is truly “independent.”

I am not commenting on the allegations themselves—only framing the issue.

A Path Forward

Part of the reason markets have taken the threat of Powell’s removal in stride is that his term ends in May. Powell is a lame duck.

The good news is that there is a candidate to succeed Powell who resigned as Fed Governor when then-Chair Bernanke failed to wind-down emergency measures after the worst of the crisis had passed—and who has since been consistent in criticizing the Fed’s transgressions. He has gone further, arguing that the Fed must overhaul its approach to monetary policy, its communications strategy, and—most importantly—exit its various fiscal experiments. He has blamed the Fed for inflating housing prices and for encouraging Congress to overspend by keeping rates artificially low.

He also believes we may be facing a productivity boom, a view supported by recent data.

Naysayers argue that this candidate is “desperate” for the job and is merely singing Trump’s tunes. While it is true that he spoke out more forcefully last year, his views have been consistent for more than 15 years.

The even better news is that prediction markets currently make him the front-runner. I am referring to former Fed Governor Kevin Warsh.

With Warsh as Fed Chair, a measure of calm might return to the Fed, with the potential for positive implications on rates and inflation. On inflation, Warsh has accused the FOMC of projecting higher long-run inflation than its stated target, arguing that if the FOMC does not believe its own target, why should the market?

Why not abolish the Fed?

Some ask “why don’t we abolish the Fed altogether?” They point to what has happened to the dollar since the Fed’s founding and refer to the number of times the Fed has been wrong. If someone would propose a replacement system that truly constrained government spending, I would be eager to hear it.

However, it appears we are in an era of unsustainable deficits. Governments have an incentive to debase a currency’s purchasing power in order to reduce the real value of their debt. In that sense, the interest of governments and citizens is not aligned. Government will do what is in its self-interest and, for example, a gold standard that imposes spending discipline, is not. In plain English, a gold standard would likely break down quickly in today’s world of ever-expanding entitlement spending.

Be careful what you wish for: if Congress gets its hands on the Fed, the result is more likely a scramble to claim and reach into the Cookie Jar than a return to fiscal discipline.

Don’t get me wrong. I believe unsustainable deficits are the biggest national security threat the US is facing. On the monetary side, the way to support a sustainable path, in my view, is to pursue sound monetary policy. Then work on fiscal sustainability through measures to boost growth and productivity and enact entitlement reform. The last part is likely the hardest.

Outlook

I write this as someone managing approximately $4 billion in precious metals and mining investments, as of this writing. If Kevin Warsh becomes Fed Chair, all else being equal, I believe that would be a headwind for our investments.

In practice, “all else being equal” rarely applies. In the short-term, the markets may not react to a change in the Fed Chair. This may be due to Powell’s working constructively on succession. A few weeks ago, he used language around productivity gains in a press conference that both Kevin Warsh and Kevin Hassett—who appeared to be the top contender at the time to succeed Powell—have emphasized. The short-term path of interest rates is more likely driven by the economy than by the Chair’s ego.

Ultimately, I believe the debate over Fed independence is not academic. It is about who controls the Cookie Jar when fiscal pressures mount. In my view, an independent central bank has the potential to try to keep the lid on; a politicized one risks it will be ripped open.

To end on a more somber note: my view is that absent entitlement reform and with a deteriorating fiscal trajectory, central banks—as former ECB President Mario Draghi demonstrated—will ultimately do whatever it takes.

Follow me at x.com/AxelMerk, and feel free to reach out with questions.

Axel Merk
President & CIO, Merk Investments

This report was prepared by Merk Investments LLC (“Merk Investments”),and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Merk Investments makes no representation regarding the advisability of investing in the products herein. The information contained herein reflects Merk Investments’ current views and opinions with respect to, among other things, future events and financial performance. Charts, graphs, and tables are provided for illustrative purposes only. Any forward-looking statements contained herein are based on current estimates and expectations. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute investment advice and is not intended as an endorsement of any specific investment. The information contained herein is general in nature and is provided solely for educational and informational purposes. The information provided does not constitute legal, financial or tax advice. You should obtain advice specific to your circumstances from your own legal, financial and tax advisors. Past performance is no guarantee of future results.