Gross annual return
After two very strong months (April +9%, May +8%), June ended 9.84% lower for the leading asset class. The second quarter can
therefore best be described as: two steps forward and one step back. Such a pattern fits a
recovery move after a long correction. A correction that started almost a year
ago. The correction is technically not completed until the bottom has been
retested, resulting in a second higher bottom. After that, the road is open again to
higher prices. Avi Gilbert, the only technical analyst who correctly predicted both the
2011 peak ($1912) and the 2016 low ($1050), expects another strong precious
metals rally based on this pattern. In strength at least comparable to that of
Due to the drop in the gold price (-7%) over the past month, gold is now
technically just as oversold as it was during the crash of March 2020. Back
then, gold rose almost 50% within five months. Such a move would now take us towards
The HUI index of gold-producing companies fell a staggering 17% over the
past month, while our basket of producers fell just 4%. But our exploration
portfolio declined by more than 10%, partly as a result of profit-taking in
some core positions. Prices of most base metals were also under pressure in the
past month. The poor sentiment in commodity markets in general, and precious
metals markets in particular, was caused by a number of macroeconomic factors.
First, the US central bank, the Federal Reserve, hinted that it will have to
raise interest rates in due course as inflation is now starting to skyrocket.
China's concerns about this became clear as Beijing announced that it would
dump strategic reserves of a number of metals onto the market in an attempt to
push speculators out of the market. This action is putting temporary pressure
on the prices of many metals, but of course it confirms the attractiveness of
these metals for investors with a somewhat longer horizon.
The sharp drop in precious metals prices in June also appears to be related
to the introduction of the new Basel-3 banking rules, which will take effect in
July. These stipulate that so-called paper gold positions should be valued lower
on bank balance sheets, while physical gold may be valued higher. In recent months we
have observed that financial parties have significantly reduced their short
positions in gold, although they remain relatively large.
Since our inception in 2008, the fund has shown net inflows every year. Due to the very strong inflow this year (YTD, more than EUR 35 million), we now have more than 1,300 participants. The number of outstanding units of our fund broke through the 1 million barrier for the first time.
We saw prices fall across a very broad front. But most of all, we
faced very sharp corrections in some of our core positions. Both Greatland Gold and
DeGrey Mining were down 20%, while Great Bear Resources was down more than 10%. All were among the best
performing positions in 2020.
Concerns about potential lead shortages caused the lead price to rise 5%
last month, while it is now already up nearly 17% this year. Zinc and copper
fell by 3% and 8% respectively, last month. The silver price also fell by 7%.
Clearly, (precious) metals producers are finding it increasingly difficult to
keep their pipeline of new mining projects filled with quality projects. As a
result, even large producers now feel compelled to take stakes in projects that
were seen as unattractive in a previous cycle. Many in the industry are concerned
about being able to maintain the current levels of production for the coming
decades. Tension is rising in many metals markets, with global mining
production often no longer able to keep up with physical demand. Concerns about
future production shortages are also real for copper. Rio Tinto's recent
investment in Western Copper & Gold is a testament to this. WRN owns a
major project in the sparsely populated Yukon, with relatively low copper and
gold grades. Apparently, Rio envisions a scenario of continued high metal
prices that will allow even this project to be mined profitably.
We have started to reduce the number of individual positions in the
portfolio. Due to the large number of Private Placements (200+) in which we have
invested in recent years, our portfolio has expanded significantly. The number of warrant
positions in particular has grown very strongly as a result. The warrants obtained
for free give us the right to purchase additional shares at a later date, at a
predetermined price. The total value of our warrant portfolio currently
amounts to almost 6 million euros.
We ended the second quarter with a cash position of 3.2%, with ETFs making
up 6.9% of the portfolio. The producers or royalty/streaming companies
category accounts for almost 20%, as does the 'developers' category. The exploration
category still accounts for half of our assets. We seek to reduce this percentage to 40%
in the second half of the year.
Participation price (euro)
Monthly gross return
Gross return (cumulative)*
Net return (cumulative)
CAGR since inception*
* Compound Annual Growth Rate since 01-07-2008 before correction performance fee
For the full graph (2008-2021), click here
Rising inflation is now beginning to take on worrying dimensions. Lumber prices, for
example, have risen by more than 300% since the start of the Corona crisis. The worldwide wave of
incentives, ie. money creation, is causing major disruptions in many markets. Yet central banks
continue to insist that these will only have temporary effects. If the opposite turns
out to be the case, financial markets could suffer. It therefore seems
opportune to adopt a more defensive stance as an investor.
We have been contemplating the idea of adding Bitcoin to our portfolio for some time now. Since it was clear that opinions were very divided on this, we posed this question in our recent survey. More than 40% of the current participants appear to have a positive attitude towards this idea, while around 30% are negative. We have
therefore decided not to add digital assets to our
portfolio for the time being.