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The perfect storm for a commodity supercycle
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The perfect storm for a commodity supercycle

The commodity market has the potential to be the real winner when the rotation in the massive stimulus-injected markets begins.
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16 MAR, 2021

By Constanza Ramos

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After a prolonged spell of falling prices, commodities have come roaring back to life, and with the renewed prospect of a strong economic recovery, a commodity supercycle may be on the horizon.

For Eric Strand, CEO and Portfolio Manager at AuAg Fonder, he believes we are experiencing the creation of a "perfect storm" for commodities - the turning of historically prolonged bull stock and bond markets at the same time. His AuAg Silver Bullet and AuAg Precious Green funds are perfectly placed to benefit from this inflection point in the commodities market, not only because they invest in silver and gold, but also because of the strong momentum the Green transition has provided in the desirability of silver, a key primary resource for many clean/high tech innovations.

In the interview with Eric below, we find out more about what other exciting upcoming launches AuAg Fonder has planned.

Pictured, from left to right: Christopher Svensson, COO & Digital Strategy and Growth at AuAg Fonder; Eric Strand, CEO & Portfolio Manager at AuAg Fonder; Stefan Abrahamsson, CMO & Co-Portfolio Manager at AuAg Fonder

After a crazy run for gold and silver in 2020, we have recently seen some substantial outflows and price drops for these two precious metals. Could this present a 'buy the dip' opportunity, or is there some rationale to the drawback?

We saw a baby-bull market for gold starting in December 2016, but it was only during the summer of 2019 that the new secular bull market for gold and silver started. In the end of July 2020 gold broke its old All-Time-High nine years after the previous one. Now we have a new All-Time-High since August and we also broke the big number of 2000 USD / troy ounce. In a bull market, that we expect will last another 5-10 years, we will probably see several new All-Time-Highs.

A stronger dollar and a stock market that only goes up have acted as a headwind for gold. In addition, the Commercials have tried to push the price down so that they can somehow cover their extensive short positions. Now they have done their best and the market structure is perfect when considering COMEX positioning and a washed out low retail sentiment. This paves the way for a really strong bull run.

Now that the long-end of the yield curve is beginning to tick up, why should investors maintain positions in gold?

Looking at the short term, there have been a slow development of the gold price, but I see this as a misunderstanding by market participants. Real rates and the direction of real rates are important for gold. Yields go up because of a possible inflation and gold thrives in an inflation environment. I also think that price inflation is rather out of fashion as they have changed the components to calculate it so much the last 30-40 years. The truth and consequences of money printing and creating so much debt is shown in asset inflation, just watch the price of stocks, real estate, and gold the last 20 years. How much can you buy from your net salary?

Can you describe what you mean when you say we are witnessing a "perfect storm", growing inflation concerns along with the exorbitant global debt levels?

With a “perfect storm” I refer to that we have a bull market for stocks that is very long in the tooth (12 years now) and a bond bull market that is over 30 years in the running. The bond cycles are much longer and when both markets turn on the same time it creates massive money flows. Especially big now as both markets have grown to enormous values through all central bank and government stimulus in the world. The commodity market can be the real winner when the rotation starts.

We hear that AuAg will be launching an ETF in partnerships with HANetf at the end of May - will this ETF be focused on Gold and Silver as well?

It’s really an amazing milestone for us that we - after having launched two daily traded UCITS funds, AuAg Silver Bullet and AuAg Precious Green – are able to create and add an ETF to our fund family. We keep the details as a secret for now, more information will come soon, but of course it is not a bad guess that we stick to the Elements and Precious Metals. In the meantime, we will release our unbundled classes “IB” for our two funds making them even more attractive for institutional investors buying through Euroclear, Clearstream, Allfunds or MFEX.

With the Green transition gaining tremendous speed, how is silver important as an input in this transition?

In our fund, AuAg Precious Green, 60% of our portfolio is invested in Green Tech companies which are benefiting from the electrification trend. The remaining 40% is an exposure towards physical precious metals, with a main focus on gold, which acts as a defensive component. But actually, our AuAg Silver Bullet is also a great play on the Green World mega trend. Silver [Ag] is a noble metal with a high resistance to corrosion and oxidation and has the best thermal and electrical conductivity of all metals making it indispensable in our high-tech and green world. It is used in so many places like mobile phones, computers, batteries and solar panels. For example, an electric car requires up to three times as much silver as a normal car.

Close to a physical shortage and often only a byproduct for the largest miners the dynamics for very high prices and a sweet spot for focused silver miners are in place.

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