Elements202204
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AuAg Monthly Letter
We believe in a bright future. We want to create a future where we have a sound sustainable world and a sound financial system. This future is enabled by the unique properties of the elements. The elements from our world, for our world. The two megatrends "green transformation" and "monetary inflation" will have a huge impact on the world in the coming decades. Our funds are investing in these megatrends. They are also promoting change and being a part of the solution towards a more sustainable world.
Unfortunately, no solution to the war in Ukraine has become a reality during April. The shortage of raw materials needed in the world is also becoming more noticeable. The new geopolitical situation is driving a "deglobalization", which, on the one hand, will create safer deliveries in the future, but which, on the other hand, will be much more expensive. Globalization over the past 30-40 years has been a strong deflationary force that will now reverse and give rise to a trend of increased inflationary pressures instead.
In addition to the monetary inflation created by central banks over the past 14 years, three other strong forces will now drive the current inflation trend: more expensive production, more people on earth reaching a higher standard of living, and a middle class in Asia with growing purchasing power competing in the world market for the same raw materials/food/products and services.
The stock markets have reacted fiercely to this new environment, and some previously overvalued sectors have been hit hard. Many indices/industries are around -20% after the first four months of the year. The stock market does not like uncertainty. The talk about how many times the interest rate will be hiked and to what levels has created nervousness in the market. It would have been much clearer if they instead showed immediate action, followed by a clear vision for how we can create a sound economy.
This year even the historically stable bond market has performed rather poor with returns of around -10%. AuAg Precious Green was designed with this market situation in mind, where bonds were replaced with gold, which has proven to work well.
This month we started to passport AuAg Silver Bullet and AuAg Precious Green to Germany as our first country outside the Nordics! AuAg Gold Mining ETF is already listed on the major exchanges in Europe.
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. Of course, what we have published earlier is also available there if you missed it.
The Funds
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.
Highlights
- It is now clear that central banks feel compelled to solve the problems they have created. Inflation has already reached historically high levels, especially concerning the interest rates on bank accounts. There is now talk of multiple future interest rate hikes, and several central banks have now also begun the process of the first hike above 0%.
- We are now also witnessing an increased awareness that the "interest to pay" is a function of the interest rate and debt level. The level of debt in the world is an alarming problem. It is more than twice as big now compared to 2008, when the system was about to crash due to a debt crisis. Back then, we did not solve the underlying problem, which was excessive debt levels. Instead, liquidity was pushed into the system, creating even more credit and debt. In addition, they reduced interest rates which got the wheels turning again.
- Gold prices declined during the month in USD (-2.1%) but increased in EUR (+ 2.8%). It is important to see the price/value change for gold in your currency in the country where you live. Gold set a new all-time high in EUR as recently as last month.
Outlook
- For the short-term movements in precious metals, the positioning on the American commodity exchange COMEX is important. Last month, it was not so good as large banks, the so-called "commercials", had increased their short positions. Smaller customers have sold during the recent price correction, and commercials have bought instead. This means that we are now moving towards a more and more bullish (positive) COMEX positioning.
- The market is often worried ahead of the upcoming Fed meeting, and it is precisely the uncertainty that is creating a weaker situation for both stock exchanges and precious metals. Gold has historically been strong in interest rate hike cycles but weak in the period before the hikes themselves. The trading phrase "buy the rumour, sell the news" often turns out to be true. Now everyone has bought dollars, and when everyone is sitting on the same side of the boat, the next direction will probably be the reverse. This means that we expect the downward pressure on gold in USD to disappear after the interest rate hike has been communicated.
The Elements
22 different metals and elements are needed for wind turbines and solar panels. These create green energy that is crucial for us to succeed with the green transformation. Below, all 22 are sorted according to the proportion of world production of each substance needed for wind power and solar energy. The first six are also the metals that are most critical in relation to the annual production capacity in the world.
Neodymium, Terbium, Indium, Dysprosium, Praseodymium, Silver
Tellurium, Gallium, Lead, Selenium, Silicon, Molybdenum, Zinc, Copper, Nickel, Steel and iron, Chrome, Cadmium, Aluminium, Manganese, Tin, Bor
Related insights
Learn more about precious metals and green tech elements in our research centre!
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