Stockholm (HedgeNordic) – The gloomy outlook on the global economic situation, the low interest rates and the rising tensions between the United States and China have all fueled a rally in a host of safe-haven assets such as gold and silver. A weakening U.S. dollar injected fresh momentum into the rally. Widespread exposure to the precious metal universe and a short position against the U.S. dollar have catapulted precious metal-focused Pacific Precious into the top ten best-performing hedge funds in the Nordics in 2020.
Managed by Mattias Gromark (pictured) out of Stockholm, Pacific Precious is up 20.6 percent year-to-date through the end of July after gaining 8.6 percent last month alone. The multi-strategy fund seeks to provide exposure to the development of precious metals such as gold, silver, palladium and platinum. “About half of the portfolio is invested all over the precious metal universe,” Gromark tells HedgeNordic, “mainly price exposure to gold and silver, but also a smaller part in platinum and palladium.” The other half is comprised of public companies active in the precious metal mining, exploration and streaming. “On top of that, the fund has a short position against USD,” says Gromark.
“It was silver’s turn to shine in July, so our silver-related companies and silver positions performed strongly.”
“It was silver’s turn to shine in July, so our silver-related companies and silver positions performed strongly,” Gromark comments on the July performance. Last month’s best-performing holding was Hecla Mining, which gained over 70 percent for the month. “Physical silver was up close to 34 percent,” says the fund manager. “Gold had another good month and was up nearly 11 percent,” Gromark continues. With gold prices up almost 30 percent this year, the yellow metal is one of the strongest-performing major assets in 2020. “At the same time, the U.S. dollar (USD) lost 5.6 percent against the Swedish krona (SEK),” which also contributed to the fund’s strong performance in July.
Bullish Case for Precious Metals
Gromark has long voiced his concerns about the unlimited money-printing by central banks and its consequences. “People will lose faith in fiat currencies and be pushed out of cash and zero-yielding government debt into fixed assets that provide some protection against unlimited money printing and the debasement of currencies,” Gromark told HedgeNordic in mid-May this year. “The recent move down in the U.S. dollar confirms that,” he now tells HedgeNordic. “The long-term bullish case for precious metals remains intact.”
“Central banks, which act as the lender of last resort and flood the system with freshly printed money, will be forced to stay in the game for the long run.”
Usually seen as a hedge against inflation and uncertainty, gold tends to attract investor interest when interest rates are low, an environment that reduces the opportunity cost of holding the non-yielding yellow metal. According to Gromark, “central banks, which act as the lender of last resort and flood the system with freshly printed money, will be forced to stay in the game for the long run.” Therefore, “nominal bond yields will be kept low, close to or below zero, while real yields will be far below zero,” he continues. “The only way out of this mess for the central banks is to try to keep the inflation expectations up and let time do the job.” For that reason, “gold and silver assets are getting more and more mainstream interest,” says Gromark. “We saw that in July,” he points out.
“Gold and silver assets are getting more and more mainstream interest.”
Gold and other precious metals also act as a hedge against uncertainty. And there is a lot of uncertainty right now. According to Gromark, “the global economy faces two tricky headwinds at the moment: the Covid-19 pandemic, which will be around for some time still, and the peak in globalization and the strategic battle between the United States and China.” The portfolio manager of Pacific Precious reckons that “this new cold war will most likely be with us for a very long time and the war of words will probably escalate into the U.S. election this autumn.”