We expect major upheavals in the financial markets over the next few years. In this article we explain our cyclical framework for these challenging times and why you should invest in commodities now.
Published: 16th of June, 2021
t o r c k c a p i t a l m a n a g e m e n t
17th of May, 2021 - by Mathias Maurer & Simon Tobler, torck capital management AG
On the eve of a new supercycle
Crypto is on everyone's lips. The rise in the price of Bitcoin and other crypto-assets since the beginning of this year has resurged interest in this fledgling asset class. More and more banks and institutional investors are announcing their plans to get into this asset class.
Over the past few years, we, Mathias Maurer and Simon Tobler, have been heavily involved in the crypto world. As driving forces, we helped shape the Swiss crypto scene. Now, however, we have set sail anew with torck capital management and entered the commodities sector with full conviction.
Why this move, when the music is playing in the crypto-asset space right now? After all, commodities have been battered for a long time now, and gold and other precious metals in particular seem to be losing their luster and attention to cryptos.
Prime time for raw materials
This is precisely the reason for the change. Given the current crypto euphoria, now is the ideal time to turn to new opportunities. Now that the banks are coming, it is important to make an anticyclical switch. Commodities, above all precious and base metals, offer the most lucrative opportunities for this!
In the wake of the Corona pandemic, monetary metals have experienced a real boost in the past year. Gold, for example, climbed to a new all-time high in August 2020 with a price per ounce of over US$2,000. Since then, the yellow metal has consolidated and probably found a good bottom at the 1,700 US dollar mark, from where it will launch a new attack on the all-time high of last summer in the short to medium term.
After the flash crash in March a year ago, industrial materials in particular really took off. The price chart of lumber for the past few months far dwarfs that of bitcoin. But base metals have also put in a decent performance. Copper, for example, climbed to a decade high this April. Industrial metals such as copper, zinc, aluminum and iron are currently benefiting from the huge infrastructure programs announced by countries around the world to support and recover their economies.
The turnaround has begun
We at torck capital management believe that demand for base and precious metals will remain high. Thus, the recent price increases are to be seen as indications of the beginning of a new "commodity super-cycle", which will most likely last for a few years. After all, as history shows, commodities always move in relatively long cycles.
In the 1990s, it was thought that the rise of the "new economy" would mark the end of commodity dependence. With the start of the Gulf War in 1991, commodity prices slid into a bear market. Only the bursting of the dotcom bubble in 2000 put an end to the bear cycle and set a bullish supercycle in motion. Even the financial crisis of 2008 could not stop gold and silver for the time being. After a so-called "echo run", the precious metals cooled down only in the summer of 2011 and a longer phase of underperformance began. In our view, this ended last year.
Driven by the flood of money
The "super cycle" ahead marks the transition from a deflationary to a reflationary environment. In response to the Corona crisis, fiscal and monetary policy are now more expansionary than ever before. Government bailouts in all countries total more than $10 trillion. For their part, central banks have also expanded their balance sheets enormously. Before the crisis, the combined balance sheets of the FED, ECB, BOJ and PBOC were already $20 trillion. Today, they collectively own assets worth nearly $30 trillion. These assets were purchased with newly created money. Banks have also increased their deposits enormously. The monetary aggregate M1, which includes all cash and bank deposits, has increased fivefold in the US since the outbreak of the Corona crisis.
These prodigious amounts of money are now gradually making their way into the economy. Compared with the same month a year ago, the U.S. consumer price index rose by 4.2 percent in April 2021, the biggest increase since September 2008.
This flood of money will have to flow into assets in light of the opportunity costs of cash deposits. Bonds will continue to benefit from this, even though the gigantic debt levels of governments and companies would argue in favor of an increase in bond yields. It is to be expected that there will be no escape from the zero interest rate trap and that negative interest rates will remain with us.
Especially gold will benefit from such developments!
Higher demand than ever
In terms of economic policy, an important course has been set in recent years, which will generate an ongoing, intensifying demand for base metals such as nickel, aluminum, iron, copper or cobalt. The latter are all needed in the manufacture of electric vehicles and their batteries, and this industry will do well in the coming years as the transition from the internal combustion engine to electric vehicles is in full swing. Uranium is also coming back into focus, especially as many new nuclear power plants are being built, particularly in Asia and Russia.
Also worth mentioning is silver, which is particularly exciting because it has a dual function. There is still a monetary demand for silver, which is why there is a correlation with gold. Often it is even the case that when gold rises in price, silver records an even stronger price increase. At the same time, silver is also an industrial metal. Due to the advancing electrification, an increase in silver demand is therefore also to be expected over the next few years. Whether electric cars or solar panels, they all contain silver. The green revolution is therefore also a silver revolution.
Torck capital management is ideally positioned for this upcoming super cycle with its products. The monetary as well as the industrial components are both covered. Thus, the super cycle can be fully exploited to the greatest possible advantage of the investor. The focus is on junior mining stocks, as here the relation between risk and return is ideal. With the appropriate network for access to information and expertise, the chances of good returns are very high. Thanks to our experience and network, we are well positioned and know what to look out for in order to finally filter out the pearls among the junior mining stocks.