After a dreadful 2022, 2023 started well. The Commodity Discovery Fund was already trading 8% higher after the first ten trading days. Such a start suits recovery after a long correction period. After our record performance in 2020, the (precious metals) correction lasted almost 30 months.
Disaster year 2022For investors, 2022 was the worst year since the financial disaster year of 2008 (Dow -38%). The sharp rise in interest rates led to a bond crash. Even treasuries fell 16%, the most significant drop since the US Civil War (1788). Tech losses were also substantial. Amazon halved, and Google fell 40%.
Institutional investors with a standard (60% stocks, 40% bonds) portfolio lost 20% during one of the five worst years in the past 100 years. With the trend reversal in interest rates, this traditional 60-40 portfolio is no longer a safe haven. As a result, relatively large amounts of money are starting to flow into alternative investments.
Ukraine warIt is still too early to determine the actual effects of the conflict, but it is already clear that the shock waves will continue for decades. The peace dividend, which we have enjoyed since the late 1980s, has ended. The energy crisis shows that raw materials are no longer available indefinitely and cheaply. It seems to be the end of an era of cheap money, labor, raw materials, and above all, cheap solutions. Inflation, of course, cannot be fought by printing money.
The geopolitical consequences are significant. There seems to be an end to the globalization trend in which East and West cooperated indefinitely. The non-Western alliance (BRICS Plus) is beginning to use resources in their fight against the establishment. The period where the West (read the US) determined the rules of the game appears to be over. And with that, the moment is getting close, and nearly 80 years of US hegemony is about to end. It explains the shock waves we are now facing. But, of course, a Reset cannot take place without shocks.
Interest rate policyWith inflation appearing to have reached its peak for now, central banks are getting closer to the tipping point in their monetary tightening (QT). A turn to another round of monetary easing (QE) is inevitable, given the massive burden of higher interest rates on the economy and government debt. The resumption of QE will push commodities and precious metals to higher levels.
Since the breakout in early November, gold is already up $250, partly due to the largest demand for gold from central banks since 1968. The commodity bull market appears to have begun. Gold and silver have broken out of the downtrend of the last two years with vigor. We expect precious metals-related stocks to follow quickly. These usually lag recovery by several months. Recovery in our sector is often extremely powerful. After the Corona crash, we saw five consecutive months of double-digit monthly returns. After the Lehman crash, the fund even rose over 300% within 30 months.
Investment PolicyFor the Commodity Discovery Fund, 2023 will see a further tightening of the investment policy. The weighting of exploration companies within the portfolio will be reduced somewhat. The focus remains, of course, on Discovery Investing. We will continue to invest at least 50% in the best discoveries in gold, silver and battery metals, among others. The other half of assets will be invested in more liquid royalty companies, producers and commodity ETFs. This repositioning helps further reduce volatility and gives us more flexibility to adjust the portfolio if so desired.
Goldman SachsInterestingly, institutional investors are suddenly becoming significantly more enthusiastic about investing in commodities. Credit Suisse is even advising clients to halve the positions in their bonds and put the freed-up 20% entirely into commodities. And Goldman Sachs expects commodity prices to rise more than 40% this year, now that China has finally come to its senses. With the end of the ZERO-Covid policy, demand for commodities is rising rapidly, as in most commodity markets, half of the demand comes from China. According to Goldman Sachs, the "Commodity Super Cycle" has begun. An era where investors can benefit from ever-higher prices, due to ever-increasing shortages.
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