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Weekly insights from the Trail

Three things that got the team talking this week

August 12, 2022August 19th, 2022
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1. You’re indestructible, always believe in…GOLD…

The USD gold price has come under further pressure recently as the US Federal Reserve continues to raise interest rates. However, the gold price denominated in AUD is near decade highs. The ASX Gold Index has historically followed the AUD gold price, but it is now trading at a large relative discount as shown in the chart below.

We believe the sell-off in Australian gold stocks is overdone, and rising recession risks lead us to believe gold is an attractive asset class for investors over the coming 12-months. We have used the recent weakness to add to our position in Australian gold producer, Newcrest Mining, which has a strong balance sheet and high-quality growth assets which are value accretive.

Spot Gold Price (in AUD, LHS) vs ASX Gold Index (RHS)

Source: Bloomberg

2. What Covid…

The US has added nearly a million jobs in the past 2 months! The labor market added 528,000 jobs in July, easily beating estimates of a 258,000 increase. And the unemployment rate has fallen to 3.5%. The US has now regained all the jobs lost through covid. And there are 1.8 job openings per unemployed person.

Meanwhile in Australia, there has been some tapering off in growth in recent weeks. But job ads for June remained strong being up 23% on pcp, with the situation much the same in Asia being up 65% on pcp. ABS data from June showed that over 25% of businesses are now reporting at least one job vacancy (compared to 11% pre-pandemic).

The candidate scarcity situation is adding a complex layer to the inflation debate for global central bankers…

Source: Mizuho Securities, BLS

Source: Morgans Research

3. Oil is the new data…

According to Gas Buddy, a petrol discount app that has 12 million weekly active users, weekly US gasoline demand fell 0.01% week on week to the end of July. And was 2.6% above the average of the previous 4 weeks.

And while we’ve seen diesel prices start to drop off, there’s been no cooling in renewable diesel (animal fats / used cooking oil). California is the biggest consumer of renewable diesels in the US and is progressing ahead of its carbon reduction targets. So much so that the California Air Resources Board (CARB) hosted a public workshop to discuss potential changes to their carbon targets. Among the proposals was a suggestion to increase the 2030 carbon intensity reduction target, which is currently set at a 20% reduction from the 2010 baseline by 2030. Potential changes included raising the reduction target to 25% or 30% by 2030. Which is good news for S3 Global Opportunities Fund holding Darling Ingredients.

Source: Gas Buddy

Source: JP Morgan

Disclaimer

This article is prepared by Firetrail Investments Pty Limited (‘Firetrail’) (ABN 98 622 377 913, AFSL 516821) as the investment manager of the Firetrail Australian High Conviction Fund (ARSN 624 136 045), the Firetrail Absolute Return Fund (ARSN 624 135 879), the Firetrail Australian Small Companies Fund (ARSN 638 792 113) and the Firetrail S3 Global Opportunities Fund (ARSN 653 717 625) (‘the Funds’). Pinnacle Fund Services Limited ('PFSL') (ABN 29 082 494 362, AFSL 238371) is the product issuer of the Fund. PFSL is not licensed to provide financial product advice. PFSL is a wholly-owned subsidiary of the Pinnacle Investment Management Group Limited (‘Pinnacle’) (ABN 22 100 325 184). The Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) of the relevant Fund are available via the links below. Any potential investor should consider the PDS and TMD before deciding whether to acquire, or continue to hold units in, the Fund.

Links to the Product Disclosure Statement: WHT3810AU, WHT5134AU, WHT3093AU, WHT7794AU

Links to the Target Market Determination: WHT3810AU, WHT5134AU, WHT3093AU, WHT7794AU

For historic TMD’s please contact Pinnacle client service Phone 1300 010 311 or Email service@pinnacleinvestment.com

This communication is for general information only. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so. Past performance is for illustrative purposes only and is not indicative of future performance.

Whilst Firetrail, PFSL and Pinnacle believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. Subject to any liability which cannot be excluded under the relevant laws, Firetrail, PFSL and Pinnacle disclaim all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. This disclaimer extends to any entity that may distribute this communication.

Any opinions and forecasts reflect the judgment and assumptions of Firetrail and its representatives on the basis of information available as at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future.

Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this communication is prohibited without obtaining prior written permission from Firetrail. Pinnacle and its associates may have interests in financial products and may receive fees from companies referred to during this communication.

This may contain the trade names or trademarks of various third parties, and if so, any such use is solely for illustrative purposes only. All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with, endorsement by, or association of any kind between them and Firetrail.

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