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Monthly Letter

Elements202201

AuAg Monthly Letter

2022 started with strong movements in equity markets, commodities, and interest rates. The concern came mainly from the FED's talk of reduced stimulus and future interest rate hikes. Geopolitical unrest and continued high inflation also contributed.

Now we have the Winter olympics in China ahead of us, and we hope that it can have a calming and unifying effect on the world. To experience the participants' struggles and feelings after so many years of preparation, including successes and setbacks, is great. The journey itself creates the feeling of having reached its goal. The fact that the best athletes are rewarded with gold and silver medals shows how important precious metals are in our society. One note is that gold medals today are made of silver, plated with gold. The 1912 Olympics in Stockholm was the last when the gold medal was pure gold.

Some good news is that our ETF (exchange-traded fund) is now available for monthly savings at Nordnet! In addition, we have got Avanza's top management to look into building a much better user experience for buying ETFs on their platform.

Once again, it turns out that you, our investors, old and new, have strong faith in the case, which is only getting stronger in every way. The positive net inflows into the funds during the month of January indicates that you, our investors, just as we believe in the thesis to "buy cheap and sell expensive". We look forward to, and hope for, a good continuation of the year. The journey together has just begun!

Don’t forget to explore our Research Centre where we collect the latest (and previous) articles, videos, and podcasts.

The Funds

Select fund below to get to the respective fund page. There you can see, among other things: how to invest, the new fund sheets, and live ticker price on the holdings.

Highlights

FED continued to communicate about the need to start raising interest rates, which of course, had significant effects on a market that has been dependent on stimuli in the form of unprecedented low-interest rates and asset purchases. In recent years, the assets that have become sharply overvalued are very vulnerable and have a significant fall height.

It is also clear that computers with algorithms that act on "news" and not facts make the pendulum swing faster and stronger in today's world. Here, effects from broad market-weighted indices and thus ETFs that now have substantial positions in the companies that have been most overvalued can also have significant consequences if these companies lose a lot of value in the future.

A return to an environment where: market players provide the long-term interest rate, without asset purchases from central banks, and excessive indebtedness due to money market interest rates close to zero, would give us a sound economy. But the road there is difficult because the bubble has been allowed to become so large, and the question is whether you will not instead have to go back already at 1-2 per cent interest. Talk about all future interest rate hikes is perhaps just talk.

It was long since we latest saw so much geopolitical uncertainty, and that people also talk about war. After the debacle in Afghanistan, the world power USA now has problems with both Russia/Ukraine and China/Taiwan. Europe stays away the most and does everything to bring about peaceful solutions.

There have been record purchases of gold during the month, indicating that more investors are starting to position themselves for the coming market climate.

Outlook

Here are some important factors that will affect the investment environment in the future.

FED risks a stock market crash if they raise interest rates too quickly or run-away inflation if they do not raise the rates. Precious metals are historically weak just before the interest rate hike cycle begins, but all the stronger once the hikes have begun. So it's starting to be the day for the FED to act and stop talking.

After the declines in precious metals at the end of the month, the positioning on COMEX is very bullish. Commercials simply do not come out of their last short positions, and the question now is whether they will dare to go short to limit the next rise or whether they let prices rise freely.

Precious metals such as gold and silver are now extremely cheap in relation to the S&P 500. At the same time, the mining companies are historically cheap in relation to the metals themselves. This provides a significant "risk/reward" opportunity for a long-term portfolio or a pure "contrarian" investor.

The Elements

The elements of the month are Iridium and Platinum. Water electrolysis to produce hydrogen is not new: an industrial electrolysis plant was first commissioned in Norway in the late 1920s to supply hydrogen. Three technologies are commercially available today, and more are in development. Proton exchange membrane (PEM) electrolysis has only been used at a small scale in the past. Still, it is rapidly gaining commercial maturity at scale as it is increasingly applied in clean energy projects. A PEM cell is an acidic environment under a strongly oxidising voltage, which is a harsh environment for materials. The only effective catalysts under these conditions identified so far are noble metals, especially iridium/ruthenium and platinum. Both iridium and ruthenium are supplied almost entirely as minor byproducts of platinum mining. Although platinum group metals (PGMs) loadings will diminish to maximise efficient use of metal, the anticipated growth in demand for PEM electrolysis capacity to produce green hydrogen presents significant demand potential in the longer term. Together with the use of platinum in automotive fuel cells, this places PGMs at the heart of the hydrogen economy. Therefore, there is no doubt that the PGMs will play a strong contributory role in the energy transition through 2050. As we say: "It’s the Elements – it is all about their unique properties.”

Research Centre

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AuAg Graphic
AuAg Graphic