Market Commentary – Metals Team, March 2022
By Mark Smith & Georges Lequime
Deglobalisation is the new normal – the need for an evergreen fund just got bigger.
‘A break out from a descending wedge pattern and a double bottom setup’, this is technical chit-chat for rally in gold equities. If history repeats itself, when the treasury yield curve inverts and negative economic pressures build, a recession is all the more likely within 6-18 months. An inversion occurs when short-term debt instruments have higher yields than long-term instruments of the same credit risk profile – i.e. declining long-term interest rates.
It is not surprising that the gold equities are looking to break out of their long term value trend when indexed against the S&P 500. The Federal Exchange is so far behind the curve that they are tightening into an economic slowdown and they need to front end load the 6-8 rate hikes it has planned. If the Fed is not able to raise interest rates to reach restrictive levels to stop inflation before triggering a recession, it may be forced to stop or cut rates even given the generational high inflation.
It is fortunate that the Amati Strategic Metals fund, with its evergreen approach, can switch between metal asset classes and find value through development and discovery, independent of where the metal price is heading. With over 50% precious metal exposure we are well positioned to weather any recessionary storm. The fact we have decided to invest in battery-tech metals which are experiencing such a supply squeeze currently, they are more resilient to a market slow down. We have very limited ‘true’ industrial metal weighting in the fund (i.e. we don’t own any aluminium, iron ore or steel companies) and have less than 2% direct copper investment.
During March we completed our investment weighting in the lithium space by adding to a hard rock developer in Canada and a brine developer in Argentina. Our specialty investments are now close to 30% of the fund, and with 50% precious metal exposure, the fund is nicely balanced for any future market volatility.