Time for Reevaluation of "Hard Assets"?

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A QUESTION FOR YOU:

Are you familiar with the term "hard assets"?

This will be just one of the topics covered in the newsletter. It's prudent to be acquainted with term "hard assets". Some of them include:

1. Commodities: Gold, silver, copper, oil, timber.
2. Physical gold and silver: Bars, coins, jewelry.
3. Agricultural land: Farmland, orchards, livestock.
4. Art and collectibles: Paintings, sculptures, antiques.
5. Real estate: Apartments, houses, land, commercial properties.

Hard investments are currently at their lowest level compared to financial assets since 1925, indicating a relatively low attractiveness of "physical" investments (gold, silver, commodities, ...) compared to investments in financial instruments such as stocks, bonds, and other securities.

We can soon expect a reversal of the trend and a gradual increase in interest in hard investments. Perhaps the current rising price of gold heralds new times and a reversal of the trend. In this regard, I would highlight 2 things:

This could benefit the owners of existing hard investments, but at the same time, it could make it more difficult for new investors to access them. We can expect larger investments in research and development in this area, improvement of technologies for exploiting commodities, and the development of new products and services related to hard investments.

A big question is how we will control inflation in the future? Concerns about future higher inflation are also expressed in surveys conducted by Bank of America. The proportion of those concerned about future higher inflation is increasing and is at the top of the list.

Can the price of copper predict new inflation?

The link between copper and inflation is complex. While copper prices can rise ahead of inflation periods due to its role in the production of many products, inflation can also lead to higher production costs for copper, affecting its price. The price of copper is often associated with movements in the prices of other commodities, which can also be indicators of inflation. As you can see in the chart below... Could the price of copper (blue line) start rising again, with inflation following suit (orange line)?

A limited amount of new discoveries of copper deposits could cause complex changes in the global economy and commodity trade, affecting numerous industries and countries worldwide. This will certainly not contribute to lower inflation pressures. On the contrary...

Global energy demand is expected to grow faster than the rate of population growth by 2050, which contradicts predictions that demand will peak in this decade.

Meanwhile, financial "experts" await interest rate cuts

Predictions of the number of interest rate cuts in 2024 vary greatly, but more interesting than their number will be to see their impact on other asset classes. In the newsletter, I write a lot about precious metals, so we are probably most interested in the impact of interest rate cuts on the price of gold... As we can see below, past interest rate cuts have had a positive impact on the price of gold. In periods of interruptions in rate hikes (the time we are in today) and then cuts in interest rates, gold has "shone".

Will history repeat itself?

It seems that the "East" has learned a lot from history, while the "West", of which we are also part, quickly forgets important things. Look at the past imports of gold to China. In February 2024, imports amounted to 138.71 tons or 4.46 million ounces. In January, due to the Chinese lunar year, it was even higher.

We have been watching China's love for gold for several years now. As it appears, the "West" is waking up again to buying precious metals. Perhaps we are witnessing at this moment the "West" starting to demand both precious metals again. ETFs are the most popular form of investment for "Western" investors, but recently they have been "active" in selling their gold and silver stocks. With this year, the situation may change. At least that's what the chart below shows, where after months of sales, we see a renewed rise in ETF silver and gold "holdings".

What is the right and "fair" ratio between gold and silver?

At the end, another interesting table of ratios between gold and silver, which informs us about the underestimations/overvaluations happening between the two most important metals. Those of you who are familiar with what happened to the price of silver in recent years are certainly aware that silver is currently extremely undervalued compared to gold as well. The current ratio stands at 88 (1 ounce of gold can buy as much as 88 ounces of silver). What will happen in the future? Of course, no one knows... But it's interesting to play with the ratio and consider the potential scenarios. It's challenging to predict where the peak of the current commodity cycle will be and what ratio we will see in the future. But certainly, the price of gold could be much higher than it is now, and this will also give a positive impulse to the price of silver.

Finally, just one more interesting perspective for our contemplation and a question to which we will probably never get an answer. ????

All the best until next time.

Peter Herman

The newsletter "Financial View Peter Herman" does not constitute an investment advisory service. Its content does not constitute recommendations for purchase or offers to purchase, but I want to inform you about important information that I personally consider important. For all advice and suggestions, I am available with an individual consultation or via email [email protected] .