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Monthly Letter

Elements202203

AuAg Monthly Letter

New design on our monthly letter and a new website! After a lot of work, as it always is when creating a new and modern website, we are proud that it is now "live". It will enable us to improve our communication and of course, we hope you will like it. Now the work of refining and improving the website begins.

The tragic war in Ukraine has continued throughout March. With our vision where we want to see a sound world and a sound financial system, war and other rudeness between people has no place. We are now witnessing a dismantling of globalization. Globalization that would both unite the world and provide open and free trade. When all countries/regions must take care for themselves and no longer can rely on each other, it will probably lead to everything becoming much more expensive.

We have since the financial crisis 2008 – 2009 seen the amount of money in the system increase by just over 200%. This has led to strong asset inflation - but not until the summer of 2021 to price inflation. It has been delayed due to the fact that the velocity, i.e. turnover of money, has fallen sharply since 2008. This now has changed rapidly towards historically more normal levels, which means central banks now must reduce the amount of money in the system quickly so that price inflation does not reach unsustainable levels. However, reducing the amount of money and raising interest rates is easier said than done, especially now that the amount of credit and debt in the world has more than doubled in the last decade.

Now for some happier news. Our funds have continued to perform well in this turbulence, and you can read more about each fund and its returns via the links below.

The net deposits from your investors continued during the month of March and together with the positive return, AuAg Silver Bullet managed to grow over SEK 1 billion. A historic milestone that we are really proud of and something that we see as proof that our funds are both needed and highly appreciated. We bow and thank you for the trust. Of course, this is just the beginning of our joint journey!

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

Ukraine has managed to defend its country well, which has led to a more protracted war than one initially might have expected. The question now is how to find a solution that all parties are willing to accept and find a way back to a reasonably normal world order again. In addition to all human suffering, the situation shows just how dependent we are on each other. The Russian/Ukrainian economy is only a small part of the global economy - but their share of the world's energy, metals and food chain is very large. The effect of disruptions in the supply chains has probably only just begun.

Europe continues its search for solutions for a future supply model of energy, metals and food. But these are processes that cost both a lot of time and money. It will require greatly increased stimulus and indebtedness to cover the costs. At present, it is impossible to even see the extent of the impact on the financial system.

In the middle of the month, FED raised the interest rate, but only by 0.25%, now having an interest rate range of 0.25%-0.50%. At the same time, they are trying to "talk" down the inflationary pressure by communicating that the interest rate is to be raised by the same amount at each of the remaining six meetings in 2022, which then gives an interest rate range of 1.75% -2.00%. This would mean a sharp increase in borrowing costs while at the same time increasing living costs for all citizens. Companies, in need of loan financing and weak pricing power, are facing a tough and uncertain future.

In crises such as trade wars or wars, the gold price often goes up due to its “safe haven” status as a currency. As we usually communicate, these gains however usually correct down again quite quickly. Gold e.g. temporarily rose by 8% (USD) now in March and then ended at plus 1.5% (USD). The long-term rise in the gold price is instead based on the amount of credit and liabilities created in the system. The costs of the war, sanctions and their consequences will again require stimuli from the world central banks, and in connection with this also increased indebtedness through fiscal policy measures.

During the month, the gold price climbed to a new all-time high in several currencies such as the Euro, Yen and Swedish crowns.

Outlook

After the rises in precious metals in early March, the commercials have increased their short positions on COMEX but above all through the non-transparent OTC (over-the-counter) trading. Historically, this is short-term bearish (negative) for metal prices. At the same time, we are constantly approaching the day when this can no longer continue as it risks bank failures. When banks are no longer allowed to go short in the market for metals, we will see market prices that are substantially higher.

That more transparency in marketplaces will be required is obvious with the March months Nickel debacle on the LME (London Metal Exchange) in mind. The Chinese company Tsingshan Holding Group had built up short positions in nickel and had at most debts to the banks of 15 billion euro on their positions as the price in one week rose by at most 250%! The temporary salvation for the company was that the banks could not afford to take the beating and thus caused the LME to close trading and introduce limited trading. It has been shown that the LME could only see 20% of the positions (and the risk), as the rest had been done via OTC trading. Going short physical commodities that are necessary for the industry is a very dangerous game. So dangerous that it simply should not be allowed. Transparency and a free-market economy are crucial for a sound financial system.

The Elements

It is all about their unique properties. Did you know that these metals are indispensable for a computer?

  • Gold - Printed Circuit Boards, Computer Chips (CPU), Connectors
  • Silver - Printed Circuit Boards, Computer Chips, keyboard membranes, Some capacitors
  • Platinum - Hard Drives, Circuit board components
  • Palladium - Hard Drives, Circuit board components (capacitors)
  • Copper - CPU heat sinks, wiring and cables, Printed Circuit Boards, Computer Chips
  • Nickel - Circuit board components
  • Tantalum - Circuit board components (some capacitors)
  • Cobalt - Hard Drives
  • Aluminum - Printed Circuit Boards, Computer Chips, Hard Drives, CPU heat sinks
  • Tin - Printed Circuit Boards, Computer Chips
  • Zinc - Printed Circuit Boards
  • Neodymium - Hard Drives (magnets)
Research Centre

Related insights

Learn more about precious metals and green tech elements in our research centre!

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AuAg Graphic