Monthly return
Gross annual return
After an acceleration of the decline in February, the market turned as expected in March. Our fund closed the month with a return of +12.60%. This strongly suggests that the long correction in the mining sector has finally come to an end.
Gold (+8%) and silver (+9%) saw significant gains last month after both precious metals broke forcefully out of multi-year sideways patterns. The new all-time high for gold led to strong upward moves in gold and silver producers, related indices and ETFs (HUI +21%, GDX +20%, SIL +19%). Exploration companies typically lag in the early stages of a new uptrend (TSX-V +0.86% in March) but now seem to be making the same turn.
The price of gold closed the quarter at a record $2,233 per ounce, despite efforts by the Fed to moderate expectations of interest rate cuts. It seems increasingly apparent that the West is losing control over the gold price. China's enormous gold purchases since mid-2022 indicate that the flow of gold from West to East has accelerated. China is a significant buyer in the market every time the gold price falls, providing strong support for the price. Attempts to suppress the gold price on the Comex through selling gold on paper (futures) are now easily absorbed. As a result, the gold price has risen by over 40% since the low in October 2022.
Both geopolitical and macroeconomic conditions can explain the demand for gold. The likelihood of a broader military conflict in the Middle East is increasing by the day, especially now that the US and Israel have both called up reservists.
Meanwhile, in the US, 60% of all income tax revenues are spent on ever-increasing interest payments. US government debt now exceeds $33 trillion, with annual interest costs of $1.1 trillion, increasing by $100 billion every four months. The budget deficit has risen to 6.5% of GDP. This is a unsustainable situation, making interest rate cuts almost inevitable. Goldman Sachs shows in a study that every per cent reduction in interest rates leads to a 3.5% increase in the price of gold. If the current Fed rate of 5.50% is reduced to 2%, this would give a short-term price target for gold of over $2,500. In the meantime, the $2,300 level has already been reached. This effect is even stronger for copper, with an expected increase of 6% for every per cent reduction in interest rates. Incidentally, the gold-silver ratio stands at 86, meaning it has risen by over 30% since the first US interest rate hikes at the end of 2021. Interest rate cuts could reverse this trend and create the perfect setup for silver.
Expected commodity scarcity is leading to unusual initiatives. In the US, legislation is being drafted to arrange financing for deep-sea mining. This type of mining would provide an answer to China's dominance in critical metals, but such extremely costly initiatives have always failed so far.
We are seeing an increase in interest in commodities outside the Western sphere of influence. A conglomerate from Abu Dhabi has expressed interest in Zambia's Lubambe copper mine, which the Chinese JHCX has already made a bid for. The attention on copper is increasing due to recent disruptions in copper production. The gap between global copper supply and global demand is widening, leading to a breakout in the copper price.
SolGold, one of our largest positions, announced in a new economic study (PFS) that the value (NPV) of the Ecuadorian copper-gold project Cascabel now amounts to $3.2 billion. This increases the likelihood of the project being put into production and of a potential future takeover, likely by a Chinese party. SolGold's share price surged by 55% last month, although the stock still has a long way to go to reach its old peak.
The heavily corrected lithium price has prompted Albemarle, the largest Western producer, to raise new capital. To us this is a bottom signal, and indeed lithium prices have increased slightly in recent weeks. Analysts expect lithium prices to further recover in the coming period. We have used the current correction to expand lithium positions.
NexGen Energy shares have now risen above C$11. After news of their uranium discovery, we bought an initial position at 30 cents in 2015. The International Energy Agency indicates that nuclear energy will prove vital in achieving climate goals. This is tantamount to recognizing that wind, solar, and hydro energy alone cannot achieve the desired energy transition. The US has been aware of this for some time and this month provided a $1.5 billion loan to restart an old nuclear power plant. Additionally, $2.7 billion is being spent to significantly expand uranium enrichment capacity, as Russian enriched uranium will soon no longer be accessible due to planned sanctions.
We still see a positive capital inflow, resulting in the fund's assets now recovering to €103 million.
Participation price (euro)
67.13
Monthly gross return
12.60%
-3.87%
Gross return (cumulative)*
-32.87%
Net return (cumulative)
-42.00%
CAGR since inception*
-2.50
* Compound Annual Growth Rate since 01-07-2008 before correction performance fee
For the full graph (2008-now), click here.
During the New Year's gathering in Zeist, I indicated that the bottom might be very close and that a first month with 'double-digit returns' would mark the confirmation of a new bull market. Since the bottom in the last week of February, our fund has recovered by 17%. Based on fundamental and technical factors, we expect the rest of 2024 to continue recovering, especially now that so many charts show breakout patterns.
Eneco, one of the main financiers of Dutch wind farms, is not participating in bidding for a large new offshore wind farm. The company cites high costs due to rising interest and commodity prices, increased competition, and potential of delays as the biggest risks. Additionally, Shell has indicated it will slow down the pace of the energy transition and invest more in oil and gas production to keep shareholders happy.
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