The first part of this post is a monthly update about AuAg Fonder. This is followed by a summary of our view of the market (AuAgTrends).
It has been an eventful month in the precious metals market. Initially, we saw big movements in the funds, and very large inflows. A reason for this was the increased interest in silver in particular, which has been a hot topic lately. Read more about this in AuAgTrends further down.
This month we have two big news. Last week we released more information about the new fund we will launch in May, more info can be found here.
We have also launched AuAg Silver Bullet and AuAg Precious Green on Nordnet in Denmark. This means that we are now available all Nordnet platforms in the Nordic region! To support our international expansion, we have also launched an English version of the website.
We are grateful for the trust we receive from all investors - the joint journey has just begun!
On February 12th, the Chinese New Year was celebrated, and thus we left the year of the rat behind us. According to Chinese astrology, we are now in the year of the stubborn and patient ox. It will be a yin year and the element for 2021 is "metal". For AuAg Funds that are primarily exposed to gold, silver, lithium, and copper, the price of these metals plays a crucial role in creating future returns in our two funds: AuAg Silver Bullet & AuAg Precious Green.
At the time of writing, the copper price is trading at the highest levels in 10 years. In February alone, the price rose around 16% (USD), the single strongest month for the copper price since November 2016. Copper is now trading around 10% from the All Time High level from 2011.
Silver has continued to show relative strength against gold. During the beginning of February, the price of silver rose sharply and then backed down again and closed virtually unchanged from the January months close. The silver price is currently trading at a ratio of 65:1 compared to the gold price. This is the strongest level for silver since 2014.
To an untrained eye, the "silversqueeze" at the beginning of the month may have seemed very short-lived in nature and almost considered a non-event when looking back in the rearview mirror. However, the informed investor is fully aware that something fundamental has changed.
Many larger physical silver retailers witnessed ten times the regular sales volumes and others sold out 6 months of inventory in just 48 hours. Add to that the fact that during just three days we saw record inflows in physically backed silver ETFs to the equivalent of 115 million troy ounces (over half of what should be available for investment for an entire year). Silver is currently trading around an eight-year high, and investor interest is at record high levels.
The price of silver thus continues to climb further due to both an increased demand from industry, and investments in physical metal. Global silver demand is expected to reach a new eight-year high of around 1,025 billion troy ounces in 2021. This makes us even more confident in our continued belief that the silver price is accumulating even more strength to finally break to the upside.
Gold has not been fun to own in the last six months as its price lost about 15% (USD) since the new All Time High level from August 2020. During the month of February, the price of gold decreased by about 7% (USD). For the AuAg Precious Green fund, which is 40% exposed 1:1 to physically allocated gold, it thus contributed to the return ending up negative. It was in fact the first month of negative returns since the fund started 6 months ago. February ended at -2.36%. However, the return for this year is still positive for the fund.
The return for the AuAg Silver Bullet fund was -0.85% during the month of February. Despite a falling gold price, gold is still trading around levels we have historically not seen since 2011–2012. The high price continues to act as a strong and solid support to many of the mining companies which in their latest quarterly reports have communicated record profits, increased dividends, and share repurchases.
A news event with great signal value that reached the market on February 8 was when Elon Musk announced that he had bought Bitcoin for the equivalent of 8% of Tesla's (borrowed) cash assets, at a total of $1.5 billion. He also mentioned that they intend to invest in additional reserve assets in the future, such as "gold bars and physically gold-backed ETFs." We believe that this statement has the potential to result in some interesting actions that are worth keeping an eye out for in the near future.
Finally, US interest rates rose at the end of the month on expectations that inflation will begin to pick up. In the short term, it may have negative effects on the prices of gold and silver as there is a general perception that higher interest rates are bad for gold and silver. The important thing though, is the real interest rate (interest rate minus inflation) and to be completely correct, the direction of the real interest rate - which affects prices over time. Our guess is indeed a rising interest rate, but a real interest rate that is trending downwards, which is rather positive for gold and silver in contrast to how the market reacted to interest rates in the short term. The sentiment in gold is now also very negative, which significantly increases the probability that we are coming close to a bottom. It consequentially paves the way for more strength to the upside, and a longer-term upswing once the sentiment finally turns positive again.