Monthly Letter | Elements202209

AuAg Monthly Letter

At the risk of sounding repetitive, the most important macro events from the previous month still revolve around interest rate hikes, inflation, and continued energy concerns. We are starting to see indicators of high stress in the financial markets, and it will be interesting to see how central banks and governments handle this going forward. More on this further down.

The world's stock markets have declined since the upward rebound during the summer, and in the past month, we recorded the lowest levels so far this year. For example, the S&P 500 closed almost -9% (USD) and the SIXRX just over -7% (SEK) for September. Despite the month's market conditions, our funds have performed well - more details on this in the fund sheets (links below).

The application documents for our new fund were submitted to the Financial Supervisory Authority a few weeks ago. The fund will invest in the companies that extract the metals that we need in our world. The fund offers broader exposure to metals and has two sub-strategies. The first part is industrial metals, and the second is the metals we need in a high-tech and green future. We will tell you more about the fund on an ongoing basis, so keep an eye on the website and follow us on LinkedIn and Twitter.

During the month, we participated in several media channels. Some of these are Proactive Investors, and Digital Assets Podcast.

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.

Here are a few media links from the past month:

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

During the month, there were parliamentary elections in Sweden and Italy. In both countries, there was a change of government, and especially the outcome of the Italian election will cause a strained situation within the EU. This as Giorgia Meloni, Italy's first female prime minister, will stand for a tough line with a focus on the individual/family and the motto "Italy first".
The central banks continue to raise interest rates, which is now felt in most people's wallets. Companies are affected by higher borrowing costs, weaker consumer purchasing power, and increased difficulty in raising new capital with good terms. Higher energy prices and more expensive material purchases add further pressure on companies. A cocktail that can have a major impact on financial results and lead to more bankruptcies among companies. Unemployment may therefore increase, which in turn puts great pressure on politicians that will try to "fix" the situation.
The war in Ukraine has escalated with Ukraine's military successes. Russia has responded by annexing areas of Ukraine and now sees any Ukrainian advances in these areas as an attack on Russia. In connection with this, Russia has also begun to threaten to use nuclear weapons. At the same time, we have the risk of an accident at Europe's largest nuclear power plant and now also the hard-to-explain explosions of Nord Stream 1 & 2, which added a new dimension to the already tragic war situation.

Outlook

The strong dollar has continued its upward journey. Perhaps it has reached its peak and is about to reverse downward again, which likely would lift many asset classes. It has already created significant tensions in the global financial system. Many countries in emerging markets have loans in dollars that have become extremely costly and have increased their debt level in their local currency. The situation reminds us of what led to the Asian crisis in 1997.
A problematic situation concerning several large banks has arisen, with Credit Suisse and Deutsche Bank in the spotlight. The market has punished the banks severely, and their share prices have plummeted. Even if banks have to go through a reconstruction before bankruptcy, there are very large volumes of various derivatives out there in the market that make everyone worried about unknown or counterparty risks that are not yet priced in.
"The bear trap appears to be set", as we wrote on Twitter on 2022-10-02. COMEX positioning now looks like the final step in an epic market-rigging by the so-called "Commercials". We now have the lowest concentration of short positions for Commercials in history. Now, silver and gold have good conditions for a substantial price increase. At the same time, monitoring the Commercial's actions at the next rally is important.

The Elements

Silver is unique as it is both a monetary and an industrial metal. Silver has been money for thousands of years and is still used to make bars and coins. It is also the best conductor of heat and electricity, which makes it essential when making high-tech products.

Until 1920, the British pound was the world reserve currency. The currency was named "pound sterling" since a pound coin weighed one troy pound of sterling silver. "Sterling silver" means that the silver content is 92,5%, and the term "pound" comes from the Latin word "libra", which is also why the sign for the currency is the stylized letter "L" (£).

So, a British pound sterling once represented a pound of silver, a ratio of 1:1. Today, you can get 200 pound sterlings for one pound of silver.

Almost all silver jewellery and sports trophies are made of 92,5 % silver; coins are, however, made of 99,9% silver. The picture shows the memorial coin recently minted in honour of Her Late Majesty Queen Elizabeth II.