The Fund fell -13.0% during the month (I2 EUR), compared with the EMIX Global Mining Gold Index which fell -10.1% (in Euro terms).
The Fund faced challenging conditions during the month as gold and silver equities continued to be negatively impacted by the interplay between persistently high inflation, rising interest rates and a strong US dollar. While inflation has historically been supportive for precious metals prices, alongside broader commodities, the attention of investors and market commentators remains firmly fixated on the speed and scope of the US interest rate hike programme. Hawkish rhetoric from the Fed continues to sap investor sentiment towards precious metals, as policymakers stick resolutely to their core objective to reduce inflation, notwithstanding the serious risks posed by higher rates to economic growth and business activity. Global equity markets have remained tumultuous as the world adjusts to the new normal of higher US rates. Gold and silver mining equities have not been spared in this drawdown and have underperformed the physical metal prices in recent months, caught up in the widespread selling of liquid assets.
The global economic outlook remains clouded, yet slower growth and a possible recession are increasing in likelihood, with a range of major banks attributing a worryingly high probability of economic slowdown. Stagflation is now also a distinct possibility. Our core view remains that the tide will turn in favour of precious metals, as the impact of higher rates on the real economy becomes apparent in the weeks and months ahead. We believe any undershoot of the Fed’s hawkish targets for rates will be highly positive for precious metals and miners. However, should the risk of stagflation grow, as growth slows and inflation persists, we believe gold and silver will outperform broader financial markets. As real assets, precious metals have historically proved to be a safe haven from rising financial sector risk, recession risk and inflationary pressure.
Looking ahead, the sector’s recent performance belies the range of catalysts for gold and silver miners in the wake of the recent selloff. Q2 results are expected to show that a selection of high-quality miners are maintaining strong margins and demonstrating operational success, while others face rising costs and operational challenges. In our view this underscores the need for active management in the precious metals equities sector. We remain focused on those producers who are best placed to control costs, protect margins and raise their dividends, with the goal of delivering superior risk adjusted returns, relative to a passive holding in physical gold or gold equities.