We share our latest observations on gold markets

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

Key points

• Without any doubt, the conflict with Iran has created an extraordinary level of uncertainty for markets to contend with and this overshadows many of the comments we have made in relation to February. We believe the present situation should be motivating equity investors to seek exposure to gold and gold miners.
• The momentum in gold continued, driven by rising Middle East tensions and supported by falling real yields. Significantly, the correction which began in late January and continued into early February was decisively bought, which we believe indicates robust underlying demand.
• NO17 Gold generated a positive return for the month, outperforming gold bullion and the universe of gold miners. 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 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 momentum in gold (+7.9%) and silver (+10.1%) continued, driven by rising Middle East tensions (ahead of the US and Israel commencing joint attacks on Iran after US markets had closed for February) and supported by falling real yields. Significantly, the correction which began in late January and continued into early February was decisively bought, which we believe indicates robust underlying demand.

This environment remains 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.

Without any doubt, the conflict with Iran has created an extraordinary level of uncertainty for markets to contend with. This, combined with US equities indices near to all-time highs should be motivating equity investors to seek exposure to gold and gold miners.

Gold market fundamentals

Central banks

Central banks accounted for only 5 tonnes of net purchases during the month of January (the latest data available). This was well below the 20-30 tonnes per month 12-month average and we observe that some in the market have seized on this as evidence that the bull market in gold is over. In terms of what we can observe from central bank behaviour over the long-term, there is a very reasonable basis to believe that central bank gold demand is less price‑sensitive than most other buyers, but not completely price‑insensitive. With the context that gold experienced a parabolic spike during January, we’re not the slightest bit surprised that central banks reduced their rate of purchases. In some respects, it’s a positive sign that central bank demand was positive at all.

Below the surface, it was reported that the Russian central bank sold 9 tonnes of gold (realising approximately US$1.5 billion). The motivation for the sale isn’t known but we speculate that it may be to raise dollar liquidity given the pressure on the Russian economy under sanctions. While nether the volume or value is material, this is an issue that we’re watching closely on the basis that a large sovereign seller for a prolonged period of time would have the potential to weigh down the gold price. If it happened rapidly, it would likely create a short-term dip and test overall sentiment. We believe both of these scenarios would be interesting potential entry points, given our view that the upward trend in gold is likely to persist for a number of years yet.

You will recall that central banks have been an important driver of demand and 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 approximately 10%.

One month doesn’t change a trend and we remain of the view 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 policies 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 0.4% year-over-year in 2024 and 0.8% in 2025). 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$700 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$39 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.

Commercial banks

While it hasn’t received any attention at all in the mainstream media, we believe it is plausible that commercial banks have been purchasing gold in material quantities as part of their regulatory reserves under Basel III, in response to the rising risk profile of US Treasuries (which most likely represent the largest share of commercial bank reserves).

This only recently became feasible following the framework’s explicit upgrade of gold bullion (in ‘allocated’ physical form) to ‘Tier 1 High-Quality Liquid Asset’ status in July 2025, which allows banks to count it at 100% market value toward core capital and liquidity requirements (prior to July 2025, physical gold bullion held by banks under Basel III was generally classified as a Tier 3 asset and was valued at only 50% of its market value for reserves or liquidity requirements).

Estimates of the value of US Treasuries held by commercial banks globally varies considerably, however the consensus is in the order of US$3-5 trillion. The impact on gold demand under a scenario whereby commercial banks diversify their reserves, by reducing their holdings of US Treasuries, would be similar to our estimates for central banks (refer above).

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).

February saw net inflows into gold bullion ETFs of 26.0 tonnes, well below the inflows of the prior month. 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 (coincident with the ongoing 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$700 billion (only approximately 15% of Nvidia’s market capitalisation).

While total ETF gold holdings have volumetrically surpassed the highs achieved during the COVID-19 pandemic (4,171 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 US consumer (the world’s most influential demographic). In fact, it was actually illegal to own gold in the US between 1934 and 1974. Bank of America and Goldman Sachs estimate that on average US investors have only a negligible exposure to gold. We see considerable scope for investors globally to materially increase their allocation to gold in the present environment.

Technical observations

Momentum, as measured by the 14-day relative strength indicator (RSI) ended the month on the neutral side of overbought (a reading of 62), drifting upwards with the gold price, having started the month around neutral (a reading of 47). The key resistance level we’re monitoring on the downside is US$4,800 per ounce (corresponding with the 50-day moving average). We anticipate US$4,500 and US$4,000 (corresponding with the 100- and 200-day moving averages) will be important resistance levels in the event of more protracted weakness in the short-term.

Gold futures

Net speculative positioning in gold (non-commercial positions) ended February lower month-over-month. Non-commercial speculative positioning is now below the lows of 2025 and below the levels observed for the majority of 2024 which provides considerable scope for the level of speculative positioning to be a supportive factor for the gold price going forward.

Gold bullion

The momentum in gold (+7.9%) and silver (+10.1%) continued, driven by rising Middle East tensions and supported by falling real yields. Significantly, the correction which began in late January and continued into early February was decisively bought, which we believe indicates robust underlying demand.

Outlook for the gold price

While gold’s fundamentals remain strong, driven by tight supply and robust demand (led by 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 quite like this ever before – the last major uptrend from 2001-2011 was driven by ETFs accumulating gold for the first time combined with gold miners closing out hedge books (miners had sold their future production in the 1990s and they bought it back in the 2000s), while central banks were actually selling gold. Today’s 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.

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 +20.2%) rallied hard, displaying their characteristic ‘leverage’ to the gold price. We maintain our view that the ‘gold miners re-rate trade’ that we have been writing about since mid-2024 is underway (where the very strong fundamentals of gold miners begins to be recognised by markets, attracting capital flows which drive valuation multiples materially higher towards fair value).

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 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, since the peak of the last gold cycle in August 2011, the gold bullion price has appreciated 178.2% while the gold miners index has only risen 78.8%. In 2011, 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 the 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 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.