We share our latest observations on gold markets

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

Key points

• NO17 Gold generated a positive return in Australian dollars during July, broadly in line with gold bullion. Please refer to the monthly report for detail specific to the performance of the fund.
• The gold price continued its sideways consolidation which is healthy from a technical perspective.
• The general perception among investors (especially those who are not allocated to the sector) is that there isn’t much more upside for gold. This couldn’t be further from our expectation. We have a very positive outlook for the gold price and we believe ‘Liberation Day’ has lit the fuse on a much bigger upward move as capital is allocated away from US assets (especially US Treasuries).
• Gold mining stocks (excluding those listed in Australia) 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 potential for the global trade war to cause an inflation shock (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

July saw the continued sideways consolidation of gold, notwithstanding the rebound of the US dollar (US Dollar Index +3.2%), which acted as a material headwind to the gold price. Gold’s consolidation is healthy from a technical perspective (a pattern of higher lows; technical support levels holding; and dips being bought, while momentum gauges indicate that gold is not overbought at present levels) and remains supported by strong fundamentals in the physical market.

We remain of the view that investors in risk assets (such as equities) are overlooking a number of serious risks, including:

• elevated US debt levels;
• the unsustainably high budget deficit;
• the likelihood that the One Big Beautiful Bill Act exacerbates these issues (at least in the short term);
• what appears to be the US Federal Reserve losing its independence; and
• uncertainty in relation to the impacts that tariffs will have on the US and global economies (especially on inflation, employment and economic activity).

We believe that these issues create a much higher than normal risk of a serious economic slowdown or period of economic stagflation and this should be motivating equity investors to seek exposure to safe haven asset classes and sectors, such as gold and gold miners.

Macroeconomic data

Interest rate expectations

The events of the last days of July and the first day of August were a reminder of how quickly and how materially the market’s interest rate expectations can change based on economic data and comments from the US Federal Reserve (‘the Fed’).

A higher-than-expected inflation reading and the Federal Open Market Committee (FOMC)’s decision to keep interest rates on hold accompanied by a comment from the Fed Chair that an interest rate cut in September was no certainty, saw the outlook for cuts dramatically evaporate to only one cut in December (from two cuts only days earlier).

The decision to keep rates on hold was more polarising than usual with open dissent from two Fed Governors for the first time since 1993. There was also renewed pressure from President Trump to cut interest rates and on Fed Chair Jerome Powell to resign. Caping this off, following the meeting a separate Fed Governor announced their resignation from the FOMC.

Only a day later, much weaker than expected employment data combined with huge backwards revisions to the May and June figures resulted in interest expectations whipsawing back to two cuts by the end of the year. As of 1 August, the market was pricing in two interest rate cuts for the remainder of 2025, with the first cut expected in September.

The magnitude of the restatement appears to have been the catalyst for President Trump firing the head of the US Bureau of Labor Statistics, which seems like an extreme reaction. We reflect that it may also indicate that there are elevated risks of statistical error in US economic data (more broadly than just employment data) at the present time given the more unpredictable than normal policy development.

The bigger issue here is what appears to be the Fed losing its independence from government. Further, President Trump firing a bureaucrat for producing undesirable statistics is concerning. While we would expect equity markets to react positively to interest rate cuts (no matter how they happen), the Fed losing its independence must surely bring into question the objectivity of its decision making and increase the risk profile of long-dated US Treasuries and the US dollar.

Inflation data

The Core Personal Consumption expenditures Price Index (Core PCE) increased to 2.8% which was above expectations for 2.7% and the prior month’s 2.8% (revised upwards from 2.7%). 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.

Employment data

The labour market is suddenly showing a concerning level of weakness, adding only 73 thousand jobs during July (you will recall that 100 to 150 thousand is considered to have a more or less neutral impact on unemployment). Even more concerning were the significant revisions to May and June’s data to 19 thousand and 14 thousand respectively from 144 thousand and 147 thousand originally. Once again, the general assumption is that tariffs will be a headwind to employment in the short term, but that it is still too early to be observing much of an impact. The magnitude to which tariffs increase unemployment and therefore interest rates is a critical issue to monitor.

Consumer confidence

Consumer confidence (you will recall that consumer spending accounts for nearly 70% of US economic activity) came in ahead of expectations in July at 97.2 from 93.0 in June. This level indicates modest weakness in absolute terms 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 – none of which appear to be headed in the right direction in the short term.

Market impacts

The bond market suffered from the increase in risk appetite (making equities more attractive than bonds) and the contraction in interest rate expectations with the Global Aggregate Bond Index (-1.5%) posting a decline. The yield curve steepened as illustrated by the value of 1-3 year US Treasuries (-0.4%) relative to 7-10 year US Treasuries (-0.9%) and 20+ year US Treasuries (-1.5%). The yield on 10-year US Treasuries ended the month 15 basis points higher at 4.37%.

We are observing more and more attention on the long end of the curve with a view that a yield of 4.9% 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.

The US dollar (US Dollar Index +3.2% to 100) was buoyed by trade deals, a hawkish US Federal Reserve and over-sold technical positioning at the end of June (its worst first half since 1973). 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 unpredictable tariffs, budget deficits, and political interference with the US Federal Reserve.

Commodities were mixed with copper (-4.9%) blindsided by President Trump’s announcement of a 50% tariff on semi-finished copper products (such as pipes, tubes, and wiring), while crude oil (+7.3%) rallied on increasing geopolitical tensions between the US and Russia. We will comment on gold and precious metals in detail below.

Incremental tariff de-escalation, a solid start to the US corporate earnings season and considerable momentum propelled equity markets to new heights. Global equities (+1.2%) were once again driven by the US (S&P 500 Index +2.2%).

Gold bullion markets

Central banks

Based on data reported so far, central banks reported 22 tonnes of net purchases during the month of June (the latest data available – central bank gold purchases are not always reported completely, or in a timely manner, or in some cases ever), a small increase on the prior month’s 20 tonnes, albeit slightly below the 12-month average of 28 tonnes. Uzbekistan buying 9 tonnes and Kazakhstan buying 7 tonnes were the largest buyers.

We are not surprised to see central bank gold demand fluctuate from month to month, especially while the gold price is consolidating following its strong performance over the last 12-months.

You will recall that central banks have accounted for 23% 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. 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 3,600 tonnes valued at US$390 billion). Equivalent to nearly 75% of annual demand and equal to all of the gold mined annually.

What is driving this aversion to US Treasuries?

It is no longer certain that US Treasuries are the lowest-risk, highly liquid asset class. The unprecedented debt level (US$36 trillion) in the US combined with eye watering 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 key swing factor in the gold market on the basis that they are cyclical and can contribute materially to both demand and supply (depending on whether they are in an accumulation or liquidation cycle).

July saw net inflows into Gold bullion ETFs of 22.8 tonnes. 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.

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 less than US$400 billion (less than one-tenth of Nvidia’s market capitalisation).

ETF holdings are also immaterial volumetrically, 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 materially impacted by the US consumer (it was actually illegal to own gold in the US between 1934 and 1974) and we see considerable scope for this to change, especially in the present environment.

Technical observations

Over recent months, the gold price has formed a pattern of higher lows while repeatedly testing resistance on the upside at around US$3,360 per ounce (forming an ascending triangle technical price structure). While bullish compression suggests strong underlying demand, the prevailing upside resistance appears to reflect hesitancy to extend upward moves without new catalysts.

Momentum, as measured by the 14-day RSI, ranged between 40 and 64 and averaged 51 for July which indicates neither strong overbought nor oversold conditions, supporting the consolidation narrative.

Technical support levels aligning with the 100-day moving average (US$3,267 per ounce at 31 July) and key Fibonacci retracement levels (76.4% level at US$3,200 per ounce) were held on pullbacks. US$3,200 per ounce is a very important level on the downside and it would be a bearish indicator if this is breached on a deeper pullback.

We reflect that the current consolidation resembles patterns from 2005 and 1972, where a 4–5 month pause preceded renewed major advances. This would suggest scope for the consolidation period to continue with a structurally bullish bias if critical support levels are held.

Gold futures

In July, net speculative positioning in gold (non-commercial positions) increased month-over-month for the second consecutive month but the level remains below those observed for the majority of 2024 and the first quarter of 2025. The gold futures curve remains in its typical upward-sloping (contango) shape. This lower but increasing level of speculative appetite and the shape of the futures curve are consistent with the consolidation phase in the gold market which we have already described.

Outlook for the gold price

The price of gold bullion finished July little changed month-over-month at US$3,290 per ounce (-0.4%), continuing its sideways consolidation. The month saw mixed performance from other precious metals such as silver (+1.7%), platinum (-5.0%) and palladium (+8.3%). Silver is lagging gold by 8 percentage points year-over-year, while palladium is lagging by 5 percentage points and platinum by 2 percentage points.

Following a period of consolidation, we expect the uptrend in the gold price to continue driven by strong demand from central banks (seeking to diversify away from US Treasuries) and exchange traded funds (which remain in an accumulation cycle). Robust 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 will elaborate 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.

Gold mining equities

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.

Within gold equities, the most striking observation during July was the underperformance for the second consecutive month of Australian-listed gold miners (-5.1%) which contracted while those listed in the US (+0.0%) and Canada (+0.5%) were flat. We attribute this to their fuller valuations the continuation of profit taking following broker research downgrades on the sector.

In June, one investment bank said that “the easy gains from rising gold prices may be behind the sector” and that “valuations are at levels that leave little room for disappointment”.

We agree with the overall assessment in relation to the majority of Australian gold mining stocks at the present time. Once again, this highlights the dichotomy we observe between the valuations of gold mining stocks listed in Australia compared to those listed in the US and Canada, which remain at very attractive levels. Accordingly, less than 4% of our portfolio is invested in Australian gold miners.

The majors were the best performers (+4.2%) driven by Newmont Mining (NEM US, +6.6%) and Agnico Eagle Mines (AEM US, +4.6%) which both reported better than expected earnings for the second quarter. Of particular note was the performance on unit costs, which came in better than expectations and counter to the general perception that higher gold prices will be matched by higher production costs. NEM reported all-in sustaining costs (AISC) for the second quarter of US$1,593 per ounce which was 8.0% below consensus and 3.5% below the level of the first quarter. At the spot gold price at the end of July this implies EBITDA margins of over 50% which highlights the extraordinary fundamentals of gold miners in the present environment (in comparison, Nvidia is expected to generate just over 60% EBITDA margins in its present financial year).

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 73.4% while the gold miners index has actually declined 21.4%. 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 whereas today the same cohort is trading on less than 10 times.

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. 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 (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).