We share our latest observations on gold markets

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

Key points

• Upward momentum in the gold price accelerated in the first half of October, with the price surpassing US$4,000 per ounce for the first time and peaking at US$4,382 (intraday) before retracing to US$4,003 by month end and finding what appears to be some resistance on the downside.
• The move in gold miners was less powerful, possibly attributable to profit taking following their considerable outperformance during August and September, ending the month lower.
• NO17 Gold outperformed by declining less than its benchmark (the universe of established gold miners). Please refer to the monthly report for detail specific to the performance of the fund.
• In our view, diversified investors which are not directly invested in gold bullion and gold miners, are underweight the biggest trade in global markets presently. This correction is an entry point.
• Can the gold price go higher? We encourage investors to consider the gold price forecasts from the investment banks which actually trade gold bullion (and are therefore qualified to opine on it). These banks (e.g. Goldman Sachs and JP Morgan) are upgrading their forecasts to levels much higher than the current spot price on a 12-month view.
• The fundamentals of the gold mining sector are compelling and still trading at a material discount to fair value. Some commentators have compared the present time to the mid-2000s. We would remind investors that from the end of 2005, the gold bullion price went on to strengthen by 267% over nearly six years before it reached a peak in 2011.
• The potential for the global trade war to cause an inflation shock 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

Upward momentum in the gold price accelerated in the first half of October, with the price surpassing US$4,000 per ounce for the first time and peaking at US$4,382 (intraday) before retracing to US$4,003 by month end (+3.7% month-over-month) and finding what appears to be some resistance on the downside.

The move in gold miners was less powerful, possibly attributable to profit taking following their considerable outperformance during August and September, ending the month lower (GDM Index -5.4%).

While gold’s fundamentals remain strong (elevated demand and tight supply), there was almost certainly excessive (and irrational in the short term) exuberance during October. Following the mid-October correction, we anticipate a period of consolidation which we believe will be a good point to make new allocations to gold and gold miners (subject to the fundamentals remaining as strong as they are).

The fundamentals of gold miners (margins, cash generation, balance sheet health, leverage to higher gold prices) are exceptional and a majority continue to trade on valuations well below fair value and historic norms. This, combined with US equities indices at all-time-highs is likely to motivate equity investors to seek safe haven asset classes and sectors, such as gold and gold miners.

Macroeconomic data

A US Government shutdown started on 1 October (at the time of writing has been the longest so far in history) and as a consequence, the Bureau of Economic Analysis and Bureau of Labor Statistics have not been releasing the monthly economic data for which they are renowned. The data includes the Core Personal Consumption Expenditures Price Index and the Non-farm Payrolls Report, which are the Federal Open Market Committee (FOMC)’s preferred measures of inflation and unemployment, respectively. The absence of this data creates a significant obstruction to gaining a clear picture of the state of the US economy and therefore the outlook for monetary policy.

Interest rate expectations

Expectations for an interest rate cut at the FOMC’s December meeting pulled back substantially from almost fully priced-in to a roughly 70% chance following the comments from the chair of the US Federal Reserve at the October meeting that “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”. At this stage, the market is pricing in one cut in January 2026 and a second in June.

Inflation data

In the absence of Core PCE, the Consumer Price Index (CPI) has become the favoured measure of US inflation. At 3.0%, Core CPI came in slightly cooler than expectations for 3.1% and the prior reading of 3.1%. While this was below market expectations, we’re troubled by the fact that it remains stubbornly elevated which is concerning as we await the true inflationary impacts from US-induced trade war. The general assumption is that tariffs will be inflationary but that it is still too early to be observing much of an impact. The magnitude to which tariffs increase inflation and therefore interest rates is a critical issue to monitor over the next 6-12 months – we see the potential for the impact to be material.

Consumer confidence

Consumer confidence (you will recall that consumer spending accounts for nearly 70% of US economic activity) was little changed on the prior month and remains weak at 94.6 (with the context that readings of less than 100 indicate a more pessimistic than normal outlook).

The response of US consumers to the tariff shocks will be a key determining factor for the trajectory of the US economy. In the short term we are cautious on the basis that consumer confidence is believed to be driven by a combination of job security, wages, inflation and interest rates – while interest rate cuts may provide some relief, the other factors do not appear to be headed in the right direction in the short term.

Market impacts

Bonds

The bond market experienced headwinds (Global Aggregate Bond Index -0.3%) with the tempering of expectations for an interest cut at the next FOMC meeting in December. The yield curve flattened, as illustrated by the value of 1-3 year US Treasuries (unchanged) relative to 7-10 year US Treasuries (+0.4%) and 20+ year US Treasuries (+1.0%). The yield on 10-year US Treasuries ended the month 7 basis points lower at 4.08%.

Recent concerns in relation to the long end of the curve appears to be continuing to ease with yields on 20-year US Treasuries falling 8 basis points. You will recall that we have been speculating that a yield of 4.5-5% on 20-year US Treasuries may not be sufficient compensation for the risk of lending to a government with a debt level of 150% of gross domestic product and an outlook for material budget deficits for the foreseeable future.

Currencies

While the US dollar (US Dollar Index +2.1% to 100) strengthened, we believe that serious questions remain in relation to the US currency’s role as a global safe haven, driven by investor concerns about US economic policies such as tariffs, budget deficits as well as political interference with the US Federal Reserve and government agencies such as the Bureau of Labor Statistics.

Commodities

The strong market for hard commodities continued, led by industrial metals. Aluminium (+7.5%) and copper (+6.3%) were the best performers with copper continuing to benefit from recent supply disruptions at major mines. Within precious metals gold (+3.7%) was once again outperformed by the ‘precious-industrial metals’ such as silver (+4.4%), and palladium (+14.1%). Crude oil (-1.6%) was the main exception driven by a combination of weak demand and rising supply as OPEC production increases were implemented.

Equities

Considerable momentum continued to drive global equities higher (+1.9%) and US indices achieved new all-time highs (S&P 500 Index +2.3%, Nasdaq 100 Index +4.8%).

Gold bullion markets

Central banks

Based on data reported so far, central banks reported 39 tonnes of net purchases during the month of September (the latest data available – central bank gold purchases are not always reported completely, or in a timely manner, or in some cases ever). This helps to explain the strength in the gold price during September on the basis that it was double the prior month’s 19 tonnes and above the 20-30 tonnes per month 12-month average. The continued momentum notwithstanding the recent price appreciation is a positive factor.

You will recall that central banks have accounted for over 20% of total gold demand since the second quarter of 2022 when Russia invaded Ukraine (and Russia’s foreign currency reserves were frozen) which is more than double the post-financial crisis average of around 10%.

We believe that elevated gold demand from central banks is a secular trend (a robust, longer-term trend). We also see genuine potential for this level of demand to increase materially, driven by an acceleration to the established trend within central banks (other than the US Federal Reserve) of reserve diversification (reducing exposure to US Treasuries and the US dollar). There has been a clear and measurable decline in the share of US Treasuries held by central banks since early 2024 which stands in contrast to the post-financial crisis decade (during which foreign official holdings of US Treasuries steadily increased). We believe that President Trump’s unpredictable polices are likely to accelerate this trend, rather than decrease or reverse it.

Further, we believe the higher and higher prices at which central banks have been purchasing gold, especially over the last 12-months, has the potential to create a floor under the gold price, or a dynamic akin to a ‘central bank put’.

Central banks other than the US Federal Reserve hold approximately US$4 trillion of US Treasuries. Substituting just 1% of these holdings for gold over a 12-month period would roughly double the rate of gold demand growth (we estimate that it would increase total global gold demand by approximately 0.8% relative to gold demand which grew at 0.7% year-over-year in 2024). You will recall that gold demand grows very slowly (demand growth has averaged 1% per annum over the last 10-15 years), so even substituting a relatively small amount of US Treasuries for gold would stand to have a significant impact on the price of gold.

What if central banks dump US Treasuries more rapidly?

The amount of gold required to substitute 10% of non-US central bank holdings of US Treasuries is equivalent to all of the gold presently held in gold bullion ETFs globally (approximately 3,700 tonnes valued at approximately US$500 billion). Equivalent to nearly 75% of annual demand and equal to all of the gold mined annually.

What is driving aversion to US Treasuries?

It is no longer certain that US Treasuries are the lowest-risk, highly liquid asset class. The unprecedented amount of debt at federal level (nearly US$38 trillion) in the US combined with eye watering federal government budget deficits (the 2025 budget deficit was projected at US$1.9 trillion prior to the One Big Beautiful Bill Act being passed, which is expected to see it increase) are undermining confidence in US Treasuries and the US dollar.

As a result, the volatility of US Treasuries has increased materially (c.60% since 2022) with the so-called ‘safe haven’ asset class behaving more like risk assets such as equities. You will recall that for most of the past 30 years (including the mid-2010s through 2020), the stock-bond correlation was close to zero (or negative). In 2025, the 3-year correlation hit a 75-year high (r² of nearly 0.7 to equities).

The low confidence in US Treasuries (and absence of safe haven characteristics) was evident during the recent ‘Liberation Day’ market stress when 10-year US Treasury yields spiked sharply by 64 basis points within just two days, marking one of the largest two-day increases on record.

Gold-backed ETFs

You will recall that gold bullion ETFs are the most dynamic variable in the gold market on the basis that their behaviour is cyclical and can contribute materially to both demand and supply (depending on whether they are in an accumulation or liquidation cycle). The key driver of these cycles are real yields (therefore the US interest rate cycle and inflation expectations) and the US dollar (on the basis that gold is priced in US dollars, so the gold price typically moves inversely to the dollar’s value).

October saw net inflows into gold bullion ETFs of 54.9 tonnes. While the inflows were below the prior month, we nevertheless took the momentum as a positive indicator coming on the back of such a strong month (which was the highest since March 2022 when Russia invaded Ukraine). ETFs remain in an established accumulation cycle which we expect to be a material tailwind over the next 1-2 years at least, on our base case, coincident with the present US easing cycle.

Ultimately, we believe gold demand from ETFs is a potential catalyst for the gold price to be driven considerably higher than present levels. We reflect on the immaterial penetration of gold as an asset class in exchange-traded investment markets – the market capitalisation of all the gold bullion contained in ETFs globally is approximately US$503 billion (approximately one-tenth of Nvidia’s market capitalisation).

While total ETF gold holdings are volumetrically just short of the highs achieved during the COVID-19 pandemic (3,893 tonnes relative to 3,929 tonnes in November 2020), they are immaterial in the context of the total physical gold market, accounting for less than 2% of all above-ground gold in existence in its various forms. We see considerable potential for the demand for gold from exchange-traded investment markets to increase substantially.

We reflect that gold bullion is the only major commodity or asset class which has never been sought after by the world’s most influential demographic (the US consumer). In fact, it was actually illegal to own gold in the US between 1934 and 1974. We see considerable scope for US consumers to materially increase their allocation to gold in the present environment.

Technical observations

Momentum, as commonly measured by the 14-day relative strength indicator (RSI), peaked at a reading of 81 on 16 October, indicating that gold was extremely overbought from a technical perspective, in the short-term. Following the correction which began on 21 October, this measure drifted back towards a neutral level of just over 50 by the end of the month. Following the correction, we have observed resistance on the downside at around US$4,000 per ounce. In the event that this level is breached to the downside, we anticipate US$3,900, US$3,600 and US$3,400 per ounce (corresponding with the 50-, 100- and 200-day moving averages) being key resistance levels. It would be a progressively more bearish indication if these were to be breached on a deeper pullback.

Gold futures

The Commitments of Traders reports have not been published due to the temporary closure of the Commodity Futures Trading Commission during the US government shutdown.

Outlook for the gold price

Upward momentum in the gold price accelerated in the first half of October, with the price surpassing US$4,000 per ounce for the first time to peak at US$4,382 (intraday) before retracing to US$4,003 per ounce (+3.7% month-over-month) by month end.

While gold’s fundamentals remain strong, driven by robust demand (central banks seeking to diversify away from US Treasuries and exchange traded funds which remain in an accumulation cycle) and tight supply, we believe gold’s recent strong performance needs to be consolidated.

It is critical to appreciate that we haven’t seen a demand environment like this ever before – the last major uptrend from 2001-2011 was driven by ETFs accumulating gold for the first time and gold miners closing out hedge books, while central banks were actually sellers. This strong demand, combined with a tight supply side (gold mining accounts for approximately three-quarters of total gold supply) creates a strong fundamental basis for higher gold prices. On our base case demand scenario, we assume the period of supply rebalancing will last 5-6-years and drive the gold price considerably higher than present levels.

Further, we believe we may be observing the early stages of a third leg of material gold demand growth – from the fledgling stablecoin industry (which we have elaborated on in a separate paper). This is a dynamic and evolving issue to monitor, which skews the risk to gold demand to the upside.

While gold is trading near to all-time-high prices (in both nominal and real terms), our analysis of the gold mining industry and the supply cost curve indicates that incremental increases in demand will drive the gold price materially higher (the equilibrium price is being driven up the steep tail of the cost curve).

Gold mining has experienced under-investment for more than a decade (since the end of the last cycle in 2011) and this period of neglect means the industry will be less able to respond quickly to demand shocks. We anticipate that the mine supply of gold will tighten further in the short-to-medium term, as some producers pursue a ‘mine life over value’ strategy by lowering cut-off grades (this is a characteristic cyclical reaction) which is fundamentally supportive of a higher gold price by steepening the cost curve and reducing supply.

Against this backdrop, we expect gold miners to outperform gold bullion and global equities, driven by their profit margins expanding by more than the movement of the gold price. We also expect valuation multiples on gold miners to expand as they normalise from cyclically depressed levels.

Gold mining equities

Gold miners experienced a correction coincident with that of gold in the second half of the month. The move in gold miners in the first half of the month has been less powerful than that of gold, possibly attributable to profit taking following their considerable outperformance during August and September, and as a result gold miners closed lower month-over-month. We maintain our conviction that the re-rate trade (where the very strong fundamentals of gold miners is recognised, attracting capital flows and driving valuation multiples materially higher towards fair value) that we have been writing about since mid-2024 has finally started.

We believe the catalyst was the July-August financial reporting season in which a majority of gold miners demonstrated good cost control (which was counter to the general perception that higher gold prices will be matched by higher production costs). We sense markets are beginning to recognise the strong fundamentals of many gold miners (i.e. EBITDA margins comparable to Nvidia, un-levered balance sheets, trading on valuation multiples below fair value and historic norms and providing considerable leverage to higher gold prices).

Outlook for gold mining equities

You will recall that the key factor 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 111.0% while the gold miners index has only risen 9.1%. At that time, we estimate that the top-5 gold producers by market capitalisation were trading on 29 times one-year forward price-to-free cashflow (relative to fair value at approximately 20-22 times) whereas the same cohort is trading on less than 10 times presently.

The recent strengthening of the gold price (and therefore expansion of gold mining profit margins) has not been reflected in stock prices. We believe this is on account of the fact that it has been easy to ignore the sector for the last 10-12 years, since the peak of the last cycle and a run of disappointments. Gold miners have remained off the radar for the majority of investors on the basis that they are immaterial within global equity indices, technically complex, deeply cyclical, and have been overshadowed by miners exposed to more exciting metals such as copper, lithium, rare earths and uranium, etc.

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. When it comes to forecasting the gold price, we encourage investors to consider the forecasts from the investment banks which actually trade gold bullion (and are therefore qualified to opine on it). This cohort of banks are upgrading forecasts to levels much higher than the current spot price on a 12-month view.

We see this disconnect as temporary and a significant opportunity which markets are only just beginning to recognise. We believe a normalisation (a mean reversion of valuation multiples on gold miners back to long term norms) is inevitable driven by the bull market in gold bullion, mergers and acquisitions chasing gold mining equities’ strong fundamentals and compelling valuations and equity investors looking for defensive assets with the increased risk of recession. We have also observed numerous funds being raised which are specifically targeting gold miners which indicates active flows will be increasingly directed to this opportunity. History suggests that the normalisation of such a dislocation is likely to be rapid (as opposed to gradual).