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The Asset Class with George Chevely · Strictly Business

• 0:00
  You're listening to Strictly Business Podcast with Lindsay Williams.
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  Global metal prices in US dollars are being pushed and pulled.
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  They go up and down on a daily basis, sometimes hourly basis.
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  With me now is Portfolio Manager, Natural Resources at 91 in London, George
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  Cheveley. George,
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  is it me or has the relationship suddenly changed between certain metals and what's
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  going on in the world?
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  Because it used to be that when there was a flare up, then the gold price would go
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  up.
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  And now when there's a flare up in the Middle East with the war on Iran by the US
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  and Israel,
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  what happens is that the gold price goes down because the dollar goes up.
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  It's all very confusing to me.
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  We've actually seen previously, if you remember the early weeks of COVID in early
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  March 2020 in the financial
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  crisis, in the first sort of risk off when markets are falling, we've seen gold fall
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  at those points.
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  And it's really a source of liquidity for many funds because it is such a liquid
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  asset.
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  and people use that to cover redemptions, etc.
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  But obviously, this time, people are looking at oil price rises and saying,
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  could this cause less likely, shall we say,
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  that interest rates fall and they could even go up?
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  My own view is, I think that's overplayed, and that obviously,
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  oil price rises initially will actually dampen growth and therefore, you know,
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  could actually mean that interest rates don't need to go up.
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  I think economists would say the worry is the second order effects.
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  It raises costs of living and people demand higher wages.
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  And that's why you get the worries about interest rates.
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  But I think at the moment, I mean, the uncertainty is just leading to people, you
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  know,
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  selling risk assets generally.
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  Yeah, but it is almost instantaneous these days.
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  I mean, look at the gold price now as we pre-record this podcast on Thursday
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  morning, London time.
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  We've got...
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  the gold price down 2% and the dollar up just a couple of pips.
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  So there's a lot of sensitivity.
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  The other thing that I thought of was the activities of the miners themselves
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  globally, because with yields rising,
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  therefore the gold contango goes out a bit and therefore it's more attractive to
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  hedge.
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  Have you seen any activity in the hedging department?
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  I've not seen it personally.
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  I think one of the concerns for a lot of gold miners at the moment is not so much
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  the
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  the gold price is because obviously there are two things on the oil.
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  One, they're worried, obviously, rising costs of diesel could squeeze their
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  margins.
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  But margins are at record levels.
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  So, yes, it does affect them, but it's not going to be that terrible.
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  More of a concern is whether they can get diesel.
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  And that's increasingly particularly countries like Australia are worrying
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  about diesel supply generally.
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  So it's not a question of margins being squeezed as having.
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  Really no margin because they can't produce.
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  And that's clearly, you know, miners, as they say, are pulling out their COVID
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  playbooks.
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  How are they going to cope?
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  I mean, clearly they can cut back on stripping, cut back on diesel usage.
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  But it is going to, you know, if this continues, it probably needs to continue
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  another couple of months.
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  But it could start to affect operations.
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  Given what's happened to gold, in other words, it's fallen quite precipitously.
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  There's been a couple of days when it's been down 10% in US dollar terms.
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  This Monday, actually, the Monday that's just passed was one classic example of
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  that, with Mr.
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  Trump being the main fundamental there.
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  But also we had the fall from 5,626, the futures price,
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  right back down to something like 4,400 in a couple of days.
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  Do you think that marked the peak of the market, which has run, let's face it, from
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  2,000 in quite quick time?
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  I think it's too early to say, frankly.
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  I'd remind you the average gold price in Q4 last year was just under 4,200 an
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  ounce.
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  So we're still above that even today.
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  And the average for this quarter is well above that.
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  So we're looking at companies are going to have absolute record earnings and cash
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  flows this quarter.
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  And silver also, which has fallen, only averaged $53 an ounce Q4 last year.
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  So we're still looking at prices, you know well above where they were last year on
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  the whole so
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  This is still very profitable times.
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  As I say, the main concern is around fuel supply for a number of miners.
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  But other than that, these companies are still making record earnings.
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  What about the industrial metal complex now?
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  Let's start with white metals, if we can.
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  Again, I'm looking at my screen, 2.5% down for palladium, 3% down for platinum.
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  And so it goes on.
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  They've also fallen very, very sharply indeed.
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  What's their future?
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  Yeah, I think, again, we had quite a long market coming into this, I think, and
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  therefore we've seen a lot of risk off.
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  I think on this side, there is a concern, really two things.
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  One, that we get obviously a pullback in global demand, a slowdown in global
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  growth.
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  And that will mean, you know, purchases of cars generally are lower, which is
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  obviously bad for catalyst demand.
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  and on top of that if We believe oil prices are going to remain higher.
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  That means higher diesel, petrol prices longer term.
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  You know, some people are now wondering if that's going to accelerate the move to EVs
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  again,
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  which in some ways has been going the other way.
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  So I think there is a longer term concern.
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  Does this encourage, you know, people to move more electric more quickly?
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  About a year ago, you were very, very enthusiastic about copper.
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  About a month or six weeks ago when we last spoke, that enthusiasm.
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  had waned.
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  And you're absolutely right, because at the time, it was around about $6.10 per
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  pound.
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  It's now $5.50 per pound.
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  Do you maintain that outlook of caution when it comes to copper?
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  Yeah, I think we remain cautious.
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  I must say, on the one side,
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  we've actually seen some quite good buying from China as copper has come down to sort
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  of
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  $12,000 a ton.
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  And it does seem that China has essentially is happy to buy it.
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  higher levels now than they were last year, where they seem to be supporting it
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  more like a 10,000.
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  So they seem to have moved up their base price.
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  But going forward, we do still see, you know, supply, you know, improving this
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  year.
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  And also, at the same time, we do have concerns about demand growth,
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  if we see these oil prices remain higher for longer.
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  So I think maybe, you know, copper it doesn't move too far.
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  I think the case for it going upwards is still not that strong.
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  What does it mean for your portfolio construction?
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  Because you can't ignore it.
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  I mean, you might say to yourself, OK, this might just be a blip and the base
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  case remains.
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  What is your base case and does it remain?
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  Yes.
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  So if you look at the Global Natural Resources Fund, we have been pretty active
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  in the last month.
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  We were just underweight energy, which is around 40 percent of our benchmark a month
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  ago.
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  We're now significantly overweight because our view is really whenever this resolves,
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  whether it resolves quickly or in the longer term, we believe either way, oil
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  prices,
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  which people see long term around $70 a barrel,
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  could remain above that for two or three years just because of the need for people
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  to build up stockpiles, etc.
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  And it will take some time for full production to resume.
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  So we think the case for energy does.
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  has improved.
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  In a sense, it's brought forward what we thought was a rebalancing happening over
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  the next 12 months.
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  In a sense, we've seen that happen almost immediately.
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  On the other side, we have in that fund, we've lowered our, we were overweight
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  pressure, so we're now slightly underweight.
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  And base and bulks metals were also slightly underweight.
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  The other areas we've increased is fertilizer, which is majorly impacted by
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  what's happened in the Gulf, particularly nitrogen.
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  And we've also increased our positioning in aluminium because, again, around 7%
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  of the world's supply is at threat at the moment in the Gulf.
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  George, thanks very much for your analysis.
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  George Cheveley is Portfolio Manager, Natural Resources at 91 in London.
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  The views and opinions expressed in these podcasts are those of Lindsay Williams and
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• 8:26
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• 8:26
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• 8:33
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• 8:35
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• 8:39
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• 8:41
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