We share our latest observations on gold markets

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

Key points

• Gold surged to all-time highs on safe‑haven demand and a speculative squeeze following a series of major geopolitical issues (Venezuela, Greenland and Iran).
• NO17 Gold generated a positive return for the month. 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

Gold (+13.3%) and silver (+18.9%) surged to all-time highs on safe‑haven demand and a speculative squeeze following a series of major geopolitical issues (the Maduro raid on Venezuela, the spike in tensions around Greenland, and civil unrest in Iran, alongside the ongoing conflict in Ukraine).

The speculative squeeze ended with a major reversal into month-end (gold fell 17% from its intra-month highs by the beginning of February) and we now expect a period of price consolidation. Reflecting on the extraordinary rally and its abrupt reversal, what surprised us most was the price level at which gold received buying support on the downside. We believe this indicates considerable underlying demand and broadening market conviction in the medium-long-term gold uptrend.

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. This, combined with US equities indices near to all-time highs is likely to motivate increasing equity investor flows into gold miners.

Gold market fundamentals

Central banks

Based on data reported so far, central banks made 19 tonnes of net purchases during the month of December (the latest data available – central bank gold purchases are not always reported completely, or in a timely manner, or in some cases ever), slightly below 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 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$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$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).

January saw net inflows into gold bullion ETFs of 120.1 tonnes (+58% month-over-month), the largest month since September 2025, which itself was the largest monthly inflow since March 2022 following Russia’s invasion of Ukraine. 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$600 billion (just over one-tenth of Nvidia’s market capitalisation).

While total ETF gold holdings have volumetrically surpassed the highs achieved during the COVID-19 pandemic (4,144 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), started the month only slightly above a neutral level (a reading of 55) and while it ended the month at a similar level (at a reading of 56), it peaked at 90 (extremely overbought) just prior to month end. Following the correction, we believe the key resistance level on the downside is US$4,500 per ounce (corresponding with the 50-day moving average). We anticipate US$4,200 and US$3,800 (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 January lower month-over-month, weakening from the middle of the month as the gold price move went parabolic. Positioning is now in line with 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

Gold (+13.3%) and silver (+18.9%) surged to all-time highs on safe‑haven demand and a speculative squeeze following a series of major geopolitical issues (the Maduro raid on Venezuela, the spike in tensions around Greenland, and civil unrest in Iran, alongside the ongoing conflict in Ukraine).

At the height of the frenzy, gold traded up 25% month-to-date (intra‑month peak US$5,595 per ounce, up nearly 30% month-to-date). We observe that the general perception was that this strength was entirely driven by speculative capital flows and leverage.

We reflect that while there were signs of excessive exuberance, the physical market fundamentals were and remain extremely strong. While gold ETFs experienced very strong inflows (January was the third strongest month in the last five years in terms of net inflows) and central banks appear to be buying gold in volumes not seen since the 1960s, we believe a third major leg of secular gold demand has emerged from the stablecoin industry (which we have been writing about since June 2025).

Stablecoin issuer Tether announced that it bought 27 tonnes of gold during the last quarter of 2025 and that it plans to continue for the foreseeable future. Its recent purchases take its total gold holdings to 140 tonnes which puts it alongside medium-sized central banks globally. We have elaborated on this development in a separate paper.

Silver’s move was even more extreme (intra‑month peak US$121 per ounce, up nearly 70% month-to-date) and in this case appears to have been driven by greater levels of speculation, before exchanges hiked margins which is likely to have contributed to triggering a major reversal into month-end. While silver’s fundamentals are strong (you will recall that we published a paper in June 2024 forecasting a silver price spike), we reflect on the fact that silver is an industrial metal and will have greater demand elasticity to price (therefore resistance to high prices), unlike gold. This makes silver prone to spikes as opposed to structural shifts, of which gold has experienced numerous.

The speculative squeeze in both metals ended with a major reversal into month-end (gold fell 17% from its intra-month highs by the beginning of February and silver fell by 34%) and we now expect a period of price consolidation. Reflecting on the extraordinary rally and its abrupt reversal, what surprised us most was the price level at which gold received buying support on the downside during the reversal. We believe this indicates considerable underlying demand and broadening market conviction in the medium-long-term gold uptrend.

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 +12.3%) rallied, more-or-less matching the performance of gold bullion but not displaying their characteristic ‘leverage’ to the gold price, which isn’t surprising given the magnitude of the intra-month price swings and extreme volatility. 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 157.9% while the gold miners index has only risen 48.7%. 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.