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

• The gold bullion price continued to grind higher in December, achieving new all-time highs intra-month before consolidating into year-end.
• NO17 Gold generated a positive return for the month, closing out a year in which it generated a return of +151.1% (in Australian dollar terms), materially outperforming gold bullion (+51.2%) and the universe of gold miners (Gold Miners Index +137.9%). Please refer to the monthly report for detail specific to the performance of the fund.
• In our view, diversified investors who are not directly invested in gold bullion and gold miners, are underweight the biggest trade in global markets presently and should be looking for dips in order to find an entry point.
• Can the gold price go higher? We encourage investors to consider the gold price forecasts from the investment banks that 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.

Market update

The gold bullion price continued to grind higher in December, achieving new all-time highs intra-month before consolidating into year-end.

This backdrop was a tailwind for the profit margins of gold miners and we observe that 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 near to all-time highs is likely to motivate increasing equity investor flows into gold miners.

Macroeconomic data

Interest rate expectations

While the commentary accompanying the 25-basis point interest rate cut at the December FOMC meeting was less hawkish than some in the market had feared, it was not especially dovish either. The FOMC is taking a ‘wait and see’ approach to interest rate policy as a result of still elevated inflation and notwithstanding the softening labour market. By the end of the month the market was pricing in ne interest rate cut for 2026 at the July meeting.

Inflation data

In the absence of the Core Personal Consumption expenditures Price Index (Core PCE) which wasn’t published due to the recent government shutdown, the Consumer Price Index (CPI) is the most reliable indicator of inflation. While Core CPI came in at 2.6% year-over-year which was cooler than market expectations for 3.0%, it remains elevated which is sub-optimal given there is still a risk of inflationary impacts from US-induced trade war.

Employment data

We believe the recent government shutdown, sudden replacement of the Bureau of Labor Statistics Commissioner Erika McEntarfer and dramatic decline in US immigration makes US labour market data more difficult than usual to interpret. The December non-farm payrolls reported 64 thousand new jobs created. While this was ahead of expectations for 50 thousand, the unemployment rate actually rose from 4.5% to 4.6% as a result of what economists are describing a ‘no-hire, no-fire’ environment whereby job openings, hiring and lay-offs all slowed markedly. The magnitude of jobs created is also an issue. This capped a year in which only 584 thousand new jobs were created, or approximately 50 thousand per month (you will recall that we had been accustomed to 100 to 150 thousand jobs per month being considered to have a more or less neutral impact on unemployment). Excluding recessions this was the weakest year in 22 years.

Consumer confidence

Consumer confidence (you will recall that consumer spending accounts for nearly 70% of US economic activity) was little changed at 89.1 from 88.7 in the prior month (with the context that readings of less than 100 indicate a more pessimistic than normal outlook).

Market impacts

Bonds

US Treasury yields declined at the short end of the curve, reflecting the US interest rate cut at the December FOMC meeting, however the yields for longer duration rose which most likely reflected the ‘wait and see’ message from the FOMC on the outlook for interest rate policy. Global bond benchmarks (Global Aggregate Bond Index +0.2%) were little changed. The yield curve steepened slightly but remains neutral with the 10-year/2-year spread at 69 basis points.

We remain mindful of risk at the long end of the curve on the basis 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

The US dollar weakened (US Dollar Index -1.1% to 98), although remains towards the upper end of the range (US Dollar Index 97-100) observed during the second half of 2025. Looking ahead we anticipate headwinds for the US dollar driven by falling US interest rates and the momentum of emerging markets coming into 2026. We believe that questions 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) may add to the headwinds facing the US dollar by encouraging capital to diversify into other markets.

Commodities

The momentum in precious metals continued although gold (+1.9%) lagged the ‘precious-industrial metals’ such as silver (+26.8%) and platinum (+23.3%) which went parabolic. Copper (+10.9%) continues to benefit from supply disruptions at major mines, pushing the price to all-time highs in nominal terms. The other industrial metals followed with aluminium (+4.4%) and even nickel (+12.8%) experiencing a powerful move. while the headwinds for crude oil (-3.7%) continued with the commodity experiencing a combination of weak demand and rising supply from OPEC.

Equities

While US equity indices (S&P 500 Index -0.1%, Nasdaq 100 Index -0.7%) tracked sideways to lower, global equities (MSCI World Index +0.7%) fared better as a result of major Asian (KOSPI Index +7.3%, NIKKEI 225 Index +0.2%) and European (DAX Index +2.7%, FTS 100 Index +2.2%) markets.

Gold bullion markets

Central banks

Based on data reported so far, central banks made 45 tonnes of net purchases during the month of November (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 continued strength in the gold price over this period on the basis that it was materially above the 20-30 tonnes per month 12-month average.

You will recall that central banks remain an important driver of demand having 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 approximately 10%. The continued momentum notwithstanding the recent price appreciation is a positive factor.

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 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 substitute US Treasuries for gold more rapidly?

The amount of gold required to substitute 10% of non-US central bank holdings of US Treasuries is equivalent to two-thirds of the gold presently held in gold bullion ETFs globally (approximately 4,000 tonnes valued at approximately US$600 billion) or equivalent to approximately 60% of annual demand.

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.

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).

December saw net inflows into gold bullion ETFs of 75.8 tonnes. The continued momentum is a positive indicator given the recent strong gold price appreciation. 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$600 billion (just over one-tenth of Nvidia’s market capitalisation).

While total ETF gold holdings are volumetrically equal to the highs achieved during the COVID-19 pandemic (4,018 tonnes relative to 3,929 tonnes in November 2020), this volume is 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 measured by the 14-day relative strength indicator (RSI), started the month approaching overbought levels (a reading of 65) and ended the month neutral (at a reading of 53) following the consolidation into year-end. During the consolidation, we observed downside resistance at just above US$4,300 per ounce. In the event of more protracted weakness in the short-term, we anticipate US$4,175, US$3,950 and US$3,600 per ounce (corresponding with the 50-, 100- and 200-day moving averages) providing key resistance levels. It would be a progressively more bearish indication if these were to be breached on a deeper pullback.

Gold futures

While net speculative positioning in gold (non-commercial positions) ended December higher month-over-month, positioning remains below the levels observed for the majority of 2024 and the highs during the first quarter of 2025. The level of speculative positioning and its trajectory is likely to be neutral-to-modestly constructive for the gold price going forward.

Outlook for the gold price

The gold price ended the month bellow all-time highs at US$4,319 per ounce (+1.9%).

While gold’s fundamentals remain strong, driven by tight supply and robust demand (central banks seeking to diversify away from US Treasuries and exchange traded funds which remain in an accumulation cycle), 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 selling gold. 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 and where we believe we are in the cycle, 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 both reducing supply and steepening the cost curve.

Gold mining equities

Gold miners (GDM Index +5.4%) rallied, outperforming gold bullion and displaying their characteristic ‘leverage’ to the price of gold bullion. 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 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 while 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 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.

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 127.6% while the gold miners index has only risen 32.4%. 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 and equity investors seeking gold mining equities’ strong fundamentals and compelling valuations.