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Elements202206
AuAg Monthly Letter
Summer holidays are getting closer, but not for the stock market. We have seen turbulent markets also in June with new inflation figures, interest rate hikes, and a continued turbulent situation in the stock market. More about this further down.
During the month, we focused on communication with our investors. We have recorded several interviews and a podcast episode, perfect for listening to out in the sun. You will find the links to these below and in our research centre.
We want to be innovative and at the forefront of communication with you - our investors. An essential part of this is that we want a world-class website. That is why we work continuously with updates based on, among other things, questions we receive from you. We hope you have had time to look inside our new website, which is available in Swedish and English.
During the month, we launched, among other things, a price graph, automatic updating of NAV courses, and an overview of all holdings for the AuAg Gold Mining ETF. So now, this functionality for all three funds is on the website. For those who are extra curious, the latest NAV course for the daily traded funds is published earlier on our website (at 12:00 CET) than on the platforms.
Do not forget to keep an eye out in our Research Centre, where you will find all the new articles, videos and podcasts that we have participated in. Of course, what we have published earlier is also available there if you missed it.
Don’t miss the interview with Eric at Morningstar in mid-June.
The Funds
Click on one of the funds below to get to the respective fund page. There you can find more information, such as: how to invest, the updated fund sheets (under "Documents"), and the live ticker price on the holdings.
Highlights
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During June, central banks around the world, almost in a panic, raised interest rates. Several of them have increased by 0.5% instead of the more common 0.25%. In the USA, it was the largest interest rate hike in 28 years, and in Sweden in 22 years. In addition, many central banks have communicated an aggressive rate hike path with several significant upcoming hikes. Interest rate hikes have shaken the world's stock markets where companies in certain sectors, such as real estate, are -50% this year alone. The high inflation has scared the central banks, which are now doing everything in their power to stop a threatening inflation spiral.
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As the debts in the system have grown so much larger in recent years, we do not believe that the central banks will be able to raise interest rates to the extent they wish - if they do not want to cause a total collapse at the same time. The Fed turned around the last time in December 2018 when they reached 2.5% and initiated rate cuts again to avoid a crash. As soon as they deviate from the communicated future rate hike path with further increases, the stock market and other assets are likely to rise sharply.
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The initial half of 2022 has been what we previously referred to as "the perfect storm". A period in which both equities and bonds have declined at the same time. Usually, the traditional portfolio of 60% global equities has been protected by the part with 40% bonds, which historically also did well in stock market declines. This is not the case this year, as this portfolio has been down -12.9% so far. It is for this scenario that we created our "more cautious" fund, AuAg Precious Green. A mixed fund where we replaced the bond part with precious metals with a focus on gold. The fund has performed strongly since its inception in September 2020, and, despite the circumstances, it shows only a slightly negative return of -2.8% during the year's first half.
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You can watch a short 1-minute clip on our "AuAg Youtube channel" where we talk about the "the perfect storm” scenario.
Outlook
- The COMEX positionings are now extremely bullish (positive) as commercials have bought during the downturn while retail investors have sold their long positions and gone short precious metals. In the last three years, commercials have never been in a better situation to get out of their previously built-up and market-affecting short positions. The big commercials have really positioned themselves for higher prices. Retail investors will start buying back their short positions when prices turn around and gradually break through the moving 50 and 200-day averages. As these investors have no physical commodity to deliver (naked short), the current situation is a breeding ground for explosive movements upwards.
- Interest rate hikes are expected to continue in the near future as they are still below 1% in most developed economies. The USD has strengthened to historically very high levels in the foreign exchange market. We expect that a reversal of the latest trend could significantly impact several companies depending on the sector and the USD prices for precious metals.
The Elements
The expansion of the 5G network is a prerequisite for many upcoming innovations. For example, to continue accelerating the development of autonomous vehicles as well as automated and electrified transport. This increases the demand for critical elements, such as Silver, Cobalt, Copper, Cesium, Erbium, Scandium, Gallium and Tantalum.
The increased demand for these elements is also driven by the shorter range in this new technology. 5G works with high-frequency waves and therefore needs more base stations (compared to 4G) to function optimally.
Other applications besides base stations in the future 5G world are, e.g. 5G antennas, smartphones and IoT (Internet of Things).
Silver will also be a critical element in the future of 5G, as stated by the Silver institute below:
”The electronic components that enable 5G technology will rely strongly on silver to make the global 5G platform perform seamlessly. In a future 5G connected world, silver will be a necessary component in almost all aspects of this technology, resulting in yet another end-use for silver in an already vast and versatile demand portfolio.” – Silver Institute
Related insights
Learn more about precious metals and green tech elements in our research centre!
AuAg Precious Green - It's Electrifying
Eric Strand presents AuAg Precious Green. An "all-weather" multi-asset fund investing in green tech equity and physical precious metals with a focus on gold.
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Morningstar - Are gold and silver good protections against inflation?
Interview with Eric by Morningstar
Dagens Industri - Experten om marknaden för silver och metaller
Short update about the market for precious metals when Eric Strand visits the studio at Dagens Industri.
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