Monthly Letter

Elements | November 2022

2022-12-09

The investment environment over the past month has been influenced by the hope that we are beginning to see an end to the rate hike cycle. At the same time, we see significant movements in the currency market and several interesting events for gold and silver. More on this further down.

The month of November ended with some great news! Our new fund, AuAg Essential Metals, was approved by the Financial Supervisory Authority. Several months of work have gone into creating the new fund, and we look forward to launching it around Christmas/New Year. We are currently waiting for it to be registered and made available to investors. You can read about the fund on the fund page, more information will be published there going forward.

This month, we have spent considerable time on our sustainability investment process. In 2023, new regulations will enter into force at EU level. These make it easier for investors to understand how different funds work with sustainability. During the month, we have contacted some of the companies in the funds that are lagging behind in this work but where we see significant potential for improvement.

We also visited Frankfurt and the Deutsche Goldmesse, where we were invited as speakers along with the biggest names in the industry. During the event, we had the pleasure to meet with several interesting mining companies that may be considered for inclusion in the funds in the future.

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.

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 FED continues to hike interest rates at a record pace while European central banks try to keep up. However, now we see that the market expects a slower pace from the FED and that the European central banks may gradually start to catch up. Since the turn of September/October, currency traders who have all been long the dollar in the past year, have now slowly started to position themselves for a rise in EUR against the USD instead. Continued large movements in the currency market are to be expected. The real estate companies, and the real estate market for private individuals, have major problems with the higher interest rates, leading to higher costs and lower value/prices for real estate. On the broad stock exchange, however, there are more positive tones, and you see a lot of buying in the hope that we have seen a bottom.
China’s covid policy is worrying for the whole world as it results in lower production and consumption. The tensions in the country between the people and the politicians have reached a new high level. The risk that something revolutionary will happen has increased significantly.
The physical shortage of gold and silver is apparent. At the same time, a few Commercials have increased their short positions unusually early in the recent rally. An abnormal behaviour and one wonders if this new action is a desperate move by a single major bank that has put itself in a dangerous position by being short precious metals via the OTC market. The world’s central banks as a group have been large buyers of gold since the financial crisis in 2008. In the third quarter of 2022, they set a new historical purchase record.
Over the past ten years, mining companies have gradually reduced their debt levels, strengthened their balance sheets, bought back shares at current low valuations and increased their dividends. Dividends are now in the range of 3-5%, which few other sectors can match. The companies are cautious with new projects and instead focus on acquisitions. M&A activity has increased, and we have seen cases where the acquirer has been outbid by other competing buyers.

AuAg Trends

In the quest for future energy, nuclear and uranium (U) have “again” jumped into the spotlight. Today, about 10% of the world’s electricity comes from nuclear power. We may see a much higher demand for uranium in the coming years. Still, there is the old problem of a possible nuclear power plant catastrophe. For example, a meltdown at Europe’s largest nuclear power plant in Ukraine could be a devastating blow to future nuclear energy. A lot of research is underway to develop new technology for the sector. Small reactors, and thorium (Th) as fuel might be the future for fission energy.
The largest uranium resources are in Australia, Kazakhstan, and Canada, but the largest producer by far is Kazakhstan, with 45% of the world supply. In Europe’s effort to become more self-sufficient in mining essential metals, uranium mining has gathered new interest. Around 25% of Europe’s uranium is found in Sweden. For profitable mining, you need a significant total volume, a sufficiently high concentration and, of course, a permit for new uranium mining.