Review & outlook
April 24
Dear Investor
Geopolitical conditions around the globe have continued to deteriorate since our report in January. The situation in the Gaza conflict seems more hopeless than ever, as the US has not yet been prepared to make further military support for Israel dependent on a ceasefire and Russia continues to step up the pressure on Ukraine. In the Far East, North Korea is profiting by supplying weapons to Russia, thereby boosting its self-confidence, and the war rhetoric is ramping up again. China is battling economic problems and the US is trying to put the brakes on its attempts at technological catch-up by imposing further sanctions and import duties. This, in turn, is increasing the pressure on China in its relations with Taiwan, which produces around 80% of the world’s computer chips on its territory.
Amazingly, the US continues to enjoy mild economic growth, although a sharp slowdown will start to emerge over the coming months. In Europe, on the other hand, the data are not encouraging and in particular Germany, the EU’s former driving force, is now in recession. Surveys indicate that confidence in government stands at just 30% in the EU and has even dropped to an all-time low of 28% in the US. This does not bode well for the fresh elections upcoming around the globe or at least hold out the prospect of significant potential for change.
Worldwide, inflation rates have now fallen sharply from the all-time highs reached at the beginning of last year. The financial markets have celebrated, with prices advancing significantly over the past few months, as investors expect central banks to now cut rates sharply in order to stimulate the economy. The Swiss National Bank led the way several weeks ago, cutting its key rate by 0.25% due in particular to pressure from the export industry, which is suffering as a result of the high exchange rate of the Swiss franc. The other central banks, however, see a major risk that inflation rates will rise again and so want to maintain a wait-and-see stance before cutting rates. Unfortunately, these expectations are borne out by the sharp rise in the oil price in recent weeks.
On several occasions over the past few years, we have touched upon the fact that the growth in global debt is unsustainable and out of control. US government debt alone currently stands at USD 34 trillion and every 100 days increases by a further trillion “1’000’000’000’000”! A large proportion of this debt pile will soon fall due and will now have to be refinanced at much higher interest rates. But let’s not deceive ourselves; the situation in the rest of the world is similar. This means that even more debt must be created, further weakening the purchasing power of the currencies in question over time.
The gold price has hit an all-time high in recent days. Due to the topicality of this fact, we would like to take this opportunity to address the significance of precious metals in a diversified securities portfolio in greater detail:
Gold has served as a means of payment for over 5,000 years and, among other things, has survived the fall of the Roman and German Empires and always retained its purchasing power. So the stability of gold’s purchasing power over a relatively long period also shows that the gold price does not actually rise at all relative to individual currencies; rather, individual currencies fall in value relative to gold due to the loss of purchasing power, some more so than others.
In particular, the main drivers fuelling last year’s rise in the gold price were the record-high purchases of physical gold by countless central banks led by China, Russia and Turkey. Gold has always been considered a safe haven in turbulent times. Unfortunately, it can no longer be entirely ruled out that any escalation in one of the world’s countless trouble spots could degenerate into a third world war. On top of this, however, there is now disillusionment among investors, who fear that currencies will lose their purchasing power over time as a result of the unsustainable level of debt and high inflation rates.
On the precious metals markets, there has been a rethink in this regard over the past few weeks and months, and more and more investors around the globe are now shifting some of their assets into gold and silver. Historically, precious metals have accounted for around 2.6% of western assets held at banks. However, statistics from US supervisory authorities show that the current percentage of precious metals across all asset classes is just 0.6%. So even if precious metals were to increase only marginally and approach historical percentages, this would likely result in further massive demand. We therefore expect precious metals prices to continue to rise sharply over the coming months.
Our portfolios performed well in the first quarter. In particular, the significantly overweight position in precious metals paid off. Due to the aforementioned trouble spots and economic problem areas, we will exercise considerable caution over the coming months. We are convinced of the quality of our broadly diversified investments and continue to hold our strongly overweight positions in precious metals.
We are pleased to serve you in these exciting markets and wish you more beautiful spring days to come.
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