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Monthly Letter

Elements | March 2023

The last month of the first quarter has offered a lot of market turbulence where banks have been in focus. In a world where we don’t have a sound financial system, investments in gold and silver are an important part of a portfolio. More about bank rescues and deposit guarantees further down in this letter.

In February, we had our first digital investor meeting, where we talked about the outlook for gold, silver and mining companies in 2023. During the month, we have seen that having precious metals and mining companies in a portfolio is good. The link to the recording where we talk more about this is below. We are also planning the next investor meeting, which will take place in May/June. Keep an eye out in the next monthly letter, as well as on LinkedIn/Twitter, for more information.

Many of you have contacted us and asked when AuAg Essential Metals will be launched in other Nordic countries. We are happy that the fund is now available for purchase at Nordnet in Norway, Finland and Denmark.

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

  • During the month, major cracks in the banking system began to show as a consequence of the record-fast rate hikes. During March, several banks had to be saved and underwent a reconstruction and takeover. A wave of bank runs that, in today's digital society, is even faster than before. In the US, the officials panicked and quickly raised the deposit guarantee from $250,000 to an unlimited level. This prompted savers in smaller banks to move money to larger banks which were thought to benefit from this new unlimited level. Such different treatment creates both imbalances and skewed competition. This panic measure is a medicine that, in the long run, can prove to be more dangerous than the disease.
  • Money also started moving from European banks, whose deposit guarantee is only EUR 100,000, to American banks. At the time of writing, the situation has calmed down somewhat, and they are trying to achieve a "business as usual" situation.
  • Investors have realized this year that there is a better return on short-term government securities than on a bank account. With low lending rates, the banks have taken advantage of the new higher interest rate from the central banks to generate large profits. The problem, however, is that the whole system is a so-called FRB system (Fractional Reserve Banking), and the banks do not have the money we see in our accounts. When investors move cash to short-term government bills, it has the same effect as a withdrawal, and very quickly, the banks run into problems as they often only have about 10% of the money we see in our digital bank accounts.
  • Since gold has no counterparty risk, there were also many who, in this uncertain time, took the opportunity to increase their allocation to precious metals such as gold and silver. This caused gold prices to approach new all-time highs in several currencies, and in some currencies, new record prices were already set in March. The companies that extract precious metals also performed strongly.
  • The FED now felt compelled to step in and prop up the financial system, which had once again shown itself to be so vulnerable. For several months, the FED has been trying to reduce its enormously inflated balance sheet. In just two weeks, they have now instead increased their balance sheet and soon reversed this entire reduction.
  • After the recent turmoil, the market is counting on softer communication from the central banks. Lower interest rates are now expected rather than further rate hikes. This can lead to good momentum in commodities and stocks. At the same time, we may see more problems in sectors such as real estate companies, private equity and venture capital.

AuAg Trends

  • A deposit guarantee feels nice - but why is it needed? My money can't disappear from my bank account, right? The purpose of the deposit guarantee is to prevent a bank run from even starting. Today, the guarantee exists at a national level, but the EU is building a joint system for Europe (EDIS) which will be launched in 2024.
  • But what we consider remarkable is that the value they guarantee is backed by 0.8% of what they guarantee. Then we are also talking about an EU level (100,00 EUR) much lower than that of the US (250,000 USD and now unlimited…). In the USA, the "guarantee system" (FDIC) is backed by approximately 1.3% of the guarantee against USD 250,000 per account holder/bank.
  • Very few people know how banks and deposit guarantees work in real life. We believe that a bank that the market considered sound, and that later failed, was never a sound bank. Ultimately, the only solution will be to print the money needed to cover what is guaranteed. And with that, you will once again let the value of each unit of money drop in real terms (monetary inflation) to solve the problem. 
Research Centre

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