Hirschmann Capital commentary for the second quarter ended June 30, 2025.
Dear Partner,
Below are updated results for the Hirschmann Partnership (the “Fund”). In H1 2025, Class A appreciated 68.0% v. 6.2% for the S&P 500. Despite the Fund's ultra-bearish strategy, it has outperformed both US and global equities since its inception.
The end of the US superbubble continues to seem near:
- US equity valuations remain the highest-ever on nearly all reliable metrics
- The US real estate bubble is tottering: home affordability is near an all-time low while home listings and days on market have been rising
- In May, the US 30-year bond yield reached its highest level since 2006. I have often warned that US government debt is at levels that have nearly always led to default (see 2020 and 2023 letters). As I mentioned in my previous letter, surging yields are precisely how a debt crisis might begin
- The yield curve, unemployment rate, and Leading Economic Index continue to indicate that a US recession is imminent. These indicators have accompanied eight of the last eight recessions, with no false positives. Meanwhile, the largest tariff increase in US history may upend the economy. As previously noted, a recession should trigger a US government debt crisis.
Although our gold mining equities (GMEs) have rallied, they remain extremely undervalued and remain an ideal way to invest in gold (see prior letter). After an update on our GMEs, I discuss several misconceptions about gold.
Portfolio Detail
The Fund’s portfolio is summarized below:
GME S (“S”) appreciated for two reasons. First, (redacted). Second, S appointed new leadership with extensive experience in (redacted).
GME C1 (“C1”) appreciated after announcing a merger with a larger Australian gold producer. Due to C1’s increased valuation, I sold the Fund’s C1 shares.
GME Z (“Z”) appreciated due to higher gold prices and increased expectations that a nearby gold producer will acquire Z.
GME F appreciated due to higher gold prices and favorable drilling results.
GME C3 appreciated as it began producing gold from the second of its three gold projects.
GME U (“U”) appreciated due to higher gold prices and progress towards mine construction (e.g., U recently completed the final feasibility study for its project).
GME U2 (“U2”) appreciated due to favorable drilling results and increased expectations that a nearby gold producer will acquire U2.
Gold Misconceptions
In April, a professor employed by a large investment manager published a report9 about gold that was riddled with misconceptions.
Report: Gold rose in early 2025 because US gold imports increased due to tariff concerns
The impact of the import increase is insignificant. Through May, US gold imports had increased by $5 billion year-over-year.10 That’s only 0.02% of the value of the global aboveground gold inventory. Gold's appreciation in H1 2025 is more likely due to the depreciation of the US dollar and the US government's reckless fiscal and trade policies.
Report: Gold has appreciated since 2005 due to gold exchange-traded funds (ETFs)
Gold ETFs own less than 2% of the global gold inventory.11 A 2% ownership stake is too small to account for the 345% real (inflation-adjusted) increase in gold prices since 2005. Gold’s appreciation is better explained by its low valuation in 2005 (see discussion below) and increasing concerns about government borrowing and stimulus.
Report: Gold has increased since Q3 2022 due to Chinese government buying
Official Chinese government gold buying since Q3 2022 has been tiny – less than 0.2% of global gold inventory. Further, more than 80% of these Chinese government purchases occurred in 2022-23, whereas gold’s large rally didn't begin until 2024.12
A major bank recently claimed that, due to underreporting, actual Chinese government buying has been ~0.5% of the world’s gold inventory.13 However, that amount is still small and remains unproven.
Global institutional investors, which control 70-80% of global financial assets,14 have far greater impact on gold prices than the Chinese government. China’s central bank, which is the primary holder of the Chinese government’s gold,15 controls only ~1% of global financial assets.
Report: Gold is not a useful safe asset because it is much more volatile than inflation
Despite gold’s volatility, adding gold to a portfolio has historically improved risk-adjusted returns.16 Gold’s impact on portfolio returns is a much better way to assess gold’s usefulness than comparing the volatilities of gold and inflation. Nearly all asset classes (e.g., equities, bonds, and real estate investment trusts) are more volatile than inflation. Further, gold’s volatility creates opportunities for the Fund to purchase gold at a bargain price when its valuation is low and sell gold when its valuation is high (see paragraph below).
Report: Gold is overvalued because its inflation-adjusted price is at an all-time high
My preferred method for valuing gold is by comparing (redacted) to their historical average. When gold are low (redacted), investors tend to (redacted). When gold (redacted) are high (redacted), investors tend to (redacted). Since the aboveground gold inventory is relatively fixed in the short term, (redacted).
It is incorrect to value gold by comparing its inflation-adjusted price to its historical average. (Redacted) since the US ended its gold peg in 1971. Therefore, the gold price has had to increase in real terms for (redacted).
(Redacted). Therefore, gold’s valuation is reasonable given the high probability of an inflation crisis.
The report also criticized gold using two Warren Buffett quotes. Here is the first quote: “What motivates most gold purchasers is their belief that the ranks of the fearful will grow. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As ‘bandwagon’ investors join any party, they create their own truth — for a while.”
Gold investors do indeed expect the ranks of the fearful to grow during the looming crisis. However, there is nothing wrong with buying cheap insurance before a flood. Buffett himself has said investors should “be fearful when others are greedy.”
Unlike US equities and real estate, gold’s valuation is near its historical mean; thus, the “bandwagon” effect should not be a significant concern.
The second Buffett quote: “Gold has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”
Industrial and decorative demand for gold is indeed small. However, I’m bullish on gold because I expect higher (redacted) for gold, not because I expect higher industrial and decorative demand.
I’m not arguing that gold will outperform equities for eternity. However, I do expect the gold price to increase dramatically in the looming inflation crisis as investors seek a safe alternative to bonds, equities, and bank accounts. Indeed, gold may increase more than 150% if (redacted) return to their peak during the 1965-82 US Great Inflation. Therefore, gold is currently a sensible investment.
The high costs and complexity of gold mining limit new gold production. Further, since gold is virtually indestructible, most of the gold ever mined still exists. This ensures that annual gold production is a tiny percentage of aboveground gold inventory. (See 2020 letter.) Thus, new production should be trivial compared to investor demand during a crisis.
In the unlikely event that no crisis occurs, the real gold price should nevertheless increase because the (redacted) should easily exceed the increase in gold inventory due to new production.
Other
I remain the Fund’s second-largest investor, with most of my net worth invested in the Fund.
We remain open to new investors, so feel free to distribute the redacted version of this letter.
As of July 2025, the Fund’s expense ratio was ~0.12%, which compares favorably to the 0.44% average for mutual funds and ETFs.17
Partners’ account statements will be uploaded shortly to the administrator’s portal. The Fund’s next letter is scheduled for mid-January.
In March, I was interviewed by the Wall St for Main St podcast.
Tax estimates will be sent in October. If there is a significant change, a second estimate will be sent in December. The Fund continues to focus on tax efficiency and has yet to incur any significant short-term capital gains. Unlike more than 99% of hedge funds,18 the Fund has no non-deductible management fees.
As of July 2025, the Fund had 33 clients (i.e., limited partners).
In H1 2025, the Fund introduced a new e-subscription platform.
I occasionally post comments relevant to the Fund on Twitter and, less frequently, on LinkedIn.
The Fund’s most important competitive advantage will always be its patient clients, so I greatly appreciate your continued support.
Please contact me with any questions or comments.
Kind regards,
Brian Hirschmann
Managing Partner
Hirschmann Capital
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