Monthly Letter

Elements | December 2023

November has come to an end, and it is certainly an exciting time for all of us who invest in metals.

In this letter, we have put extra focus on gold. We answer questions such as "What factors drive the gold price?" and "How do mining companies perform during a gold bull market?", more on this below. With just under a month left in 2023, we look forward to following up on our "gold outlook" that we wrote at the end of 2022 and also to start looking towards 2024.

During the month, we have been travelling. At the beginning of the month, we were in Stockholm and recorded multiple podcast episodes and videos. At the end of the month, we were a keynote speaker at the Swiss Mining Institute's annual conference in Zurich. This is one of the world's largest events for mining investors. At the event, we met many companies we hold in the funds.

We are also developing a new modern format for this letter to give you, our investors, even better information about the investment case and the funds. The new format will be launched at the beginning of the new year.

Use our unique "Research Centre" on an ongoing basis to take part in our current view of the market and the macro environment. We communicate all the time.

Here are a few media links from the past month:

Investment Solutions

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.

AuAg Thoughts

The market constantly looks for signals about when the Federal Reserve might start to lower interest rates. Perhaps we received the clearest indication last Friday during a Q&A session with Fed Chairman Jerome Powell. Several markets reacted to this, and here, we naturally focus on the gold market. Gold, as a precious metal, is central to us.
Gold also had its highest monthly closing ever on the last day of November. On the first day of December, gold closed at $2,072 per troy ounce. Gold has now set a new all-time high (ATH) in all major currencies, most recently in euros and dollars during Monday's large market movements. Gold has been strong again this year, +13.6% (USD), with one month left.
It may still require a bit of a gold rush to reach the target in our gold outlook. There, we wrote a year ago that we saw a potential increase of +20% for the gold price ($2,188).
Currently, there are numerous factors favouring gold investment. The Federal Reserve will likely reduce interest rates in 2024, and there's a possibility that these cuts could occur sooner and more rapidly than previously anticipated. Consequently, a diminishing value of the dollar is projected, which typically leads to an increase in the value of gold when measured in U.S. dollars.
Once gold breaks through and stays above $2,100, it can rise very quickly. The coming years will be a formidable secular bull market for precious metals. During these years, it is likely that the gold to silver ratio (the gold price divided by the silver price), which is now 81:1, will go towards 30:1. With a gold price in a few years at $3,000 (+44%), the silver price would then be $100 per troy ounce (+292% against today's price of $25.5).
Companies that extract precious metals have performed from +500% to +1000% in previous secular bull markets. It would, therefore, not be strange if they did it again now. As gold and silver investors, we have exciting times ahead of us.
But what actually drives the price of gold? It is simply the continued creation of credit and debt in the financial system. We should, therefore, not forget that even if the Fed has temporarily "tightened" (monetary policy), the USA has acted stimulatively through fiscal policy instead. The USA is now financing itself with a huge budget deficit of more than 6% of GDP.
Typically, politicians are averse to enduring difficult periods even if these may lead to improved conditions in the future. This is because the risk is very high that they will not be re-elected, and power is, as everyone knows, binary. Reducing stimuli and support measures is highly unpopular because it immediately affects voters. This makes it likely that they would instead resort to stimuli and spend money they do not have to keep the wheels turning.
We conclude with a very telling quote from Charlie Munger, one of our time's greatest investors, who left us at age 99. "Show me the incentive and I will show you the outcome."

AuAg Trends

Christmas can indeed be a magical experience, and surely everyone has heard the story of the three wise men and their gifts. The three are also called the holy three kings and were Eastern astrologers. Astrologer is an interpretation of the original word "magi" (magic) and is probably a description of Zoroastrian priests from Persia.
"When Jesus was born in Bethlehem in Judea during the time of King Herod, some eastern astrologers came to Jerusalem and asked: 'Where is the king of the Jews who has been born? We have seen his star when it rose and have come to worship him.' They went into the house, and there they found the child and Mary, his mother, and they bowed down and worshipped him. They then opened their chests and presented their gifts: gold, frankincense, and myrrh." – The Gospel of Matthew, chapter 2.