Monthly Letter

Elements202208

september 01, 2022

AuAg Monthly Letter

August was another eventful month with hawkish central banks, higher interest rates, and continued inflation and energy concerns. We believe that the sentiment for gold and silver will bottom any day now and is poised for some better times ahead. More on this topic further down.

During the month, we celebrated a new all-time high for our fund AuAg Precious Green with a NAV of 16.21 EUR. Thanks to you, our loyal investors, in combination with a good return, the fund's total assets exceeded €50 million. All this in time for the fund's two-year anniversary, which occurred on the first of September 2022. The fund has generated a solid return and avoided longer periods of decline despite a turbulent investment climate.

We have been working on creating a new AuAg fund for the past months. This fund will complement the current fund offering and focus on industrial- and new technology metals. Metals that are essential for our world today and in the future. Now we just need to wait and see how fast the Financial Supervisory Authority in Sweden is to respond, but we hope to be able to launch the fund in December.

During the month, we participated in several media channels. Some of these are Realtid, Market Makers Podcast and CISITV. See the links below.

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.

Here are a few media links from the past month:

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

During the month, FED chairman Jerome Powell's speech from Jackson Hole about continued interest rate hikes had a major impact on the market. The message was that they won't stop raising rates until they reach their goal, regardless of how painful it may be. This caused the market to reverse sharply and become more negative again.
Gold, like stocks, usually goes "ahead" of today's events, and prices are set according to the market's future expectations. Gold started pricing in today's inflation early and has risen 23.1% in euro over the past three years. During the past months, the market has discounted higher interest rates and a more challenging business climate going forward. This means that the market will now focus on future scenarios with lower interest rates, a weaker dollar and the effects of todays and future large fiscal support measures (higher debt levels).
Gold is likely to gain strength with the upcoming fiscal stimulus. It looks even better for silver due to a very favourable positioning on the important COMEX exchange. Trend-following funds have probably maxed out their short (naked short) positions, and Commercials have now reversed and are long silver. During the decline since the eighth of March, the biggest buyers of silver have been Commercials on the COMEX exchange, and there has been a lot of buying pressure from Asia, with India at the top. In addition, the market has already priced in China's Covid-related shutdowns, which has pressured all commodity prices for a long time. Historically, the best buying opportunities for silver are when the sentiment is at rock bottom and the so-called "gold to silver ratio" reaches high levels. It is now around 95:1, which is one of the highest in our history, and should at least go down to 30-40:1. Theoretically, it should be 16:1, according to Isaac Newton, as that is the natural ratio that can be extracted from the earth.

Outlook

The problem with Central Banks is that they always go too far. They lower the interest rate for too long time periods and thus create bubbles. Consequently, they raise the interest rate for too long, which results in the bubble bursting. Unfortunately, it is difficult to see a change in this behaviour, which will now lead to significantly higher loan costs for individuals and companies. This will, in turn, affect private individuals' consumption patterns but also the companies that have to face increased interest costs by reducing other expenses, such as, e.g. number of employees, to maintain profitability.
Politicians only have power if they win elections. To win elections, one must be popular, which gives an incentive to try to please the majority. In difficult times, it is, as always, about various support measures. These support measures will once again be a money printer running hot now that the Central Banks have paused theirs temporarily.
For a short time, we have seen a USD that only goes up and up. We believe in a reversal going forward, which is also crucial for the world, as such a strong dollar creates enormous pressure on less developed countries. These countries end up in a vicious spiral from imported inflation as many goods are traded in USD. Ultimately, it could lead to social unrest and revolts, which is the last thing we need in today's already complicated situation.

The Elements

This special designed Periodic Table shows "the 90 elements that make up everything in our world".

In the illustration below, you can see 31 elements with a phone symbol, showing the ones essential for making a single smartphone. 17 of these elements are especially critical concerning supply and mined volumes. Copper, silver, lithium, and nickel are examples of metals that will become more and more rare and valuable.

A very good aspect of metals is that they are cyclical in that they are fully recyclable commodities in contrast to, for example, oil and coal. Metals do also not lose their unique properties after each recycling. Higher metal prices are also good for higher recycling incentives.