We share our latest observations on global asset markets in relation to NO17 Gold

All movements are expressed in United States (US) dollar terms, unless otherwise stated.

Key points

• NO17 Gold outperformed its benchmark (the universe of gold miners) and gold bullion.
• Gold strengthened as a result of its safe haven status against uncertainty in relation to tariffs and the slowing US economy. It also benefitted from the weaker US dollar.
• The general perception among investors who are not allocated to the sector is that they have missed the rally. This couldn’t be further from our base case.
• Gold mining stocks remain extremely attractive with valuations at what we believe are 25-year lows, notwithstanding a continuing uptrend in the gold price. We see this disconnect as temporary and a significant opportunity which markets are only just beginning to recognise. The launch of various new funds specifically targeting gold miners is a lead indicator that this dislocation will normalise.
• We have a very positive outlook for the price of gold bullion also and there is no change to our belief that gold bullion ETFs are in an accumulation cycle at the same time as central banks are buying gold in volumes not seen since the 1960s.
• The potential for a protracted global trade war (which would be inflationary) at a time when inflation is already elevated and proving sticky, should be motivating investors to identify investments which would stand to benefit from such a scenario. We recall that the second inflation shock in the 1970s resulted in the gold price spiking by 179% over 12 months.

Market update

Gold strengthened as a result of its safe haven status against uncertainty in relation to tariffs and the slowing US economy. It also benefitted from the weaker US dollar. NO17 Gold outperformed its benchmark (the universe of gold miners) and gold bullion.

Macroeconomic data

The US consumer is continuing to weaken

Low consumer confidence and weak consumer spending (you will recall that consumer spending accounts for nearly 70% of US economic activity) perpetuated the market’s concerns about the US economy. Personal spending at 0.4% month-over-month came in weaker than expectations for 0.5% and consumer confidence slipped further to 92.9 from the prior reading of 98.3 (you will recall that readings of less than 100 indicate a more pessimistic outlook and month-over-month changes of more than 5 points are considered significant).

The magnitude of anticipated US economic slowdown is increasing

The Federal Open Market Committee lowered its US gross domestic product (GDP) forecast for the full year 2025 to growth of 1.7% in nominal terms (from 2.1% in December), while the Federal Reserve Bank of Atlanta has continued to downgrade its outlook for US GDP, forecasting a decline of 2.8% in real terms quarter-over-quarter annualised for the first quarter of this year (this is relative to the latest estimate of 2.4% growth for the last quarter of 2024).

The outlook for interest rate cuts is increasing notwithstanding elevated inflation

The market is now pricing in three interest rate cuts during 2025 (relative to two last month) notwithstanding inflation measures rising from an elevated level and unemployment remaining low by historical standards.

The Core Personal Consumption Expenditures Price Index (Core PCE), rose to 2.8% (from the prior month’s upwardly revised 2.7%), 10 basis points above market expectations.

While the labour market remains more or less solid with unemployment at 4.1% (an increase of 10 basis points on the prior month), the Federal Open Market Committee updated its unemployment forecast to 4.4% (from 4.3%) for the end of 2025. The economy adding 151 thousand jobs during February (you will recall that 100 to 150 thousand is considered to have a more or less neutral impact on unemployment), was fewer than the 160 thousand expected.

We note an increasing number of market commentators forecasting economic stagflation (defined as the combination of high inflation, high unemployment, and stagnant or slow economic growth). We observe that the solid US labour market remains the only factor standing between the US and this particularly undesirable condition which, should it eventuate, would be a major headwind for risk appetite but likely to be very good for safe havens such as electric utilities and gold.

Market impacts

Gold’s key macroeconomic drivers were a tailwind for the gold sector. The US dollar weakened (US Dollar Index -3.2% to 104) while real yields (US Treasury yields in real terms or the nominal yield minus expected inflation) ended the month unchanged.

Gold bullion market

Central banks

Based on data reported so far, central banks have reported 24 tonnes of net purchases for the month of February, an increase on the prior month’s 18 tonnes. The buying was led by Poland adding 29 tonnes and China 5 tonnes as well as smaller purchases by Turkey, Jordan, Qatar, and the Czech Republic.

You will recall that central banks accounted for approximately 21% of total gold demand in 2024, which is more than double the post-financial crisis average of around 10%.

We believe the higher and higher prices at which central banks have been purchasing gold, especially over the last six months, has the potential to create a floor under the gold price, or a dynamic akin to a ‘central bank put’.

We believe central bank purchases of gold at elevated volumes will continue for the foreseeable future.

Gold ETFs

You will recall that Gold ETFs are the key swing factor in the gold market on the basis that they can contribute materially to both demand and supply (depending on whether they are in an accumulation or liquidation cycle). We believe that gold bullion ETFs remain in an accumulation cycle which we expect to be a materially positive driver of the gold price over a multi-year timeframe.

In the shorter term, we believe ETFs are a potential catalyst for the gold price to be squeezed considerably higher.

The surge in demand from gold bullion-backed ETFs is continuing. Data reported for the first three weeks of March indicate net inflows of 72.6 tonnes, more than double January’s net inflow and on track to match February’s extraordinary level (which had been the strongest month since Russia invaded Ukraine). At this level of demand, we estimate ETFs are likely to have accounted for approximately 25% of total demand for the month, which is comparable to other periods of elevated financial market demand (such as the beginning of the COVID-19 pandemic in 2020 – during 2020, ETFs averaged 20% of total gold demand for the entire year and peaked at 42% during the second quarter of that year).

Outlook for the gold price

The price of gold bullion finished March at US$3,124 per ounce (+9.3%) and silver at US$34 per ounce (+9.4%). Both metals remain in established uptrends. At the end of February, we forecast that should the current level of gold demand from ETFs be sustained (or accelerate), coincident with central banks continuing to buy at historically significant volumes, we would expect to see a powerful upward move in the gold price over a relatively short timeframe (i.e. US$400-500/oz over three to six months), all else being equal. We believe this is playing out and we therefore see further upside to the gold bullion price relative to present levels.

There is no change to our belief that gold bullion ETFs are in an accumulation cycle at the same time as central banks are buying gold in volumes not seen since the 1960s. Add to this the potential for a protracted global trade war (trade wars are inflationary) at a time when inflation is already elevated and proving sticky. This, combined with President Trump declaring an ‘energy emergency’, makes the backdrop sound eerily like the 1970s when an energy crisis (an oil shock following the Iranian revolution) and an inflation shock resulted in the gold price spiking by 179% in the 12 months following January 1979.

Our base case forecast is for the gold bullion price to strengthen by 25% on a 12-month view. While gold is trading near to all-time-high prices (in nominal terms), valuing gold in nominal terms overlooks structural inflation to the cost of gold production over time. Adjusting for structural inflation factors, we estimate the all-time-high gold price at closer to US$3,500/oz. If inflation increases, so too will this price.

Gold mining equities

The stronger gold price and its positive impact the profitability of gold miners resulted in gold mining equities (+15.0%) posting strong gains and outperforming gold bullion (+9.3%). This relative performance is the result of a gold miner’s profit margin which typically expands (and contracts) by roughly double the movement in the gold price.

Within gold equities, mid-caps (both senior and emerging) and gold miners exposed to critical by-products (such as silver and copper) were the best performers.

Outlook for gold mining equities

You will recall that the key variable driving the performance of gold mining equities is each company’s operating profit margin, which typically expands (and contracts) by roughly double the movement in the gold price. Gold miners are therefore described as ‘leveraged’ to the gold price.

We anticipate gold miners will continue to appreciate in value, reflecting the expansion of their profit margin as the gold price appreciates (refer above for our outlook for the gold price).

It is noteworthy that in recent years, gold mining stocks have not been exhibiting this characteristic relationship to the gold price. For example, during 2024, the gold price strengthened by 26.7%, whereas the index of gold mining stocks only appreciated by 9.2%. Going further back to the peak of the last gold cycle in August 2011, the gold bullion price has appreciated 67.0% while the gold miners index has actually declined 30.2%.

The recent strengthening of the gold price (and therefore expansion of gold mining profit margins) has not been reflected in stock prices. This has contributed to valuations on gold mining stocks sitting at what we believe is a 25-year low (in terms of their discount to gold bullion, based on the spread between the spot gold price and the gold price implied by the market price of the equities). Further, we observe that gold equities have rarely been cheaper than the present time over the last 40 years.

We believe one of the factors contributing to dislocation is the apparent divergent forecasts for the gold price between gold bullion traders and gold mining equities analysts which we have examined in a separate report.

We see this disconnect as temporary and a significant opportunity which markets are only just beginning to recognise. We believe a normalisation is inevitable driven by gold sector momentum becoming impossible for equity investors to ignore (we are observing numerous funds being raised which are specifically targeting gold miners) and mergers and acquisitions chasing gold mining equities’ strong fundamentals and compelling valuations. History suggests that the normalisation of such a dislocation is likely to be rapid (as opposed to gradual).