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 during June, outperforming gold bullion and the universe of gold miners. Please refer to the monthly report for detail specific to the performance of the fund.
• The gold price continued to consolidate in the wake of its significant move following April’s Liberation Day shock. Silver’s performance was more spectacular (+9.5%).
• 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

During June, gold continued the consolidation phase it began in May, following four months of very strong price appreciation (+25.3% from January to April) and the achievement of a new all-time high (US$3,500 per ounce intra-day). The consolidation is healthy from a technical perspective (a pattern of higher lows; technical support levels holding and dips being bought while momentum gauges indicate gold is not overbought at present levels) and remains supported by strong fundamentals in the physical market.

We are encouraged by gold’s resilience in the face of increasing investor risk appetite and the very strong performance of US equities (the extraordinary V-shaped recovery from April’s Liberation Day shock) and even speculative assets such as Bitcoin (which is compared to gold and considered by some to be akin to ‘digital gold’ despite being more correlated to equities and 3-4 times more volatile) which could have lured investors out of the safe haven. We believe this indicates considerable fundamental strength below the surface and is a bullish backdrop for gold.

We reflect that the elevated investor risk appetite (especially for equities) appears to be ignoring a number of material risks, including elevated US debt levels; the unsustainably high budget deficit; the impacts following the One Big Beautiful Bill Act being signed in to law (which may exacerbate these issues, at least in the short term); uncertainty in relation to the impacts of tariffs (especially on inflation); and the trajectory of the economy.

We believe these uncertainties are unlikely to be resolved in the short term and should be motivating investors to seek exposure to safe haven asset classes and sectors, such as gold and gold miners.

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). Combined with a tight supply side (gold mining accounts for approximately three-quarter of gold supply and has experienced under-investment for more than a decade following the end of the last cycle in 2011) creates a strong fundamental basis for higher gold prices. Examining prior cycles, 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.

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.

Macroeconomic data

Economic data (especially inflation, unemployment and indicators of economic activity) remain among the key catalysts for asset markets over the next 2-3 months (in the absence of left field shocks which seem more likely than usual under President Trump).

The outlook for fewer interest rate cuts this year reflects higher than expected inflation and lower than expected unemployment

The market is pricing in two interest rate cuts for the remainder of 2025, with the first cut expected in September. This reflects the presently elevated inflation and low unemployment data. We reflect that these factors can change rapidly and therefore so too can interest rate expectations. In addition, we observe mounting pressure from the Trump Administration on the US Federal Reserve to cut interest rates, including explicit pressure on Fed Chair Jerome Powell to resign. In the event Powell is replaced by a more dovish Chair, this would increase the likelihood of interest rate cuts happening even in the presence of elevated inflation.

The Core Personal Consumption expenditures Price Index (Core PCE) increased to 2.7% which was above expectations for 2.6% and 2.5% in the prior month. The assumption is that tariffs will be inflationary. The magnitude to which tariffs increase inflation and therefore influence thinking on interest rate cuts is a critical issue to monitor.

The labour market remains solid with the economy adding 139 thousand jobs during May, slightly more than the 126 thousand expected (you will recall that 100 to 150 thousand is considered to have a more or less neutral impact on unemployment). This is an indication that the US economy remains strong and tariffs have not had an immediately identifiable impact on unemployment (although arguably it may be too soon). The unemployment rate was steady at 4.2%. Once again, the impact tariffs will have on the labour market is a critical issue to monitor.

The key question is how tariffs will impact the US economy

Consumer confidence slipped again in June to 93.0 from 98.0 in May (you will recall that consumer spending accounts for nearly 70% of US economic activity and month over month changes of more than 5 points are considered significant). This level is weak 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 immediate short term.

Market impacts

The bond market has calmed down relative to recent months and the whole yield curve shifted downwards during June (the yield on 10-year US Treasuries ended the month 17 basis points lower at 4.23%). The long end of the curve benefitted most with 20+ year US Treasuries (+2.3%) outperforming 7-10 year US Treasuries (+1.3%) and the Global Aggregate Bond Index (+1.9%).

The US dollar remained under pressure (US Dollar Index -2.5% to 97), suffering its worst first half since 1973 and signalling a major loss of confidence in the US currency’s role as a global safe haven. It also reflects investor concerns about US economic policies, including unpredictable tariffs, budget deficits, and maybe even the risk of political interference with the US Federal Reserve. Continued dollar weakness would make it harder for the US to finance its deficits, raise its borrowing costs, and may even start to undermine its capacity for global economic leadership.

Commodities were almost universally stronger with gold (+0.4%), crude oil (+5.8%), copper (+5.3%) and silver (+9.5%) the most notable, benefitting from the weak US Dollar and demand from investors for hard assets.

Tariff de-escalation and little concern for global geopolitical events was the backdrop for the continued rally in equities as volatility continued normalised. Global equities (+4.2%) were once again propelled by US equities (S&P 500 Index +5.0%). While technology stocks led the charge (Nasdaq 100 Index +6.3%), small caps also participated (Russell 2000 Index +5.3%).

Gold bullion markets

Central banks

Based on data reported so far (central bank gold purchases are not always reported completely, or in a timely manner, or in some cases ever), central banks reported 20 tonnes of net purchases during the month of May (the latest data available), an increase on the prior month’s 12 tonnes albeit slightly below the 12-month average of 28 tonnes. Kazakhstan and Poland (once again) were the largest buyers acquiring 7 and 6 tonnes, respectively.

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 increase 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 14 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 ETFs

You will recall that Gold 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).

June saw a resumption of net inflows into ETFs of 74.6 tonnes following modest outflows in May which came in the wake of the extraordinarily strong months in February, March and April.

Gold bullion 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

Gold made a series of higher lows while repeatedly testing resistance on the upside at around $3,450 per ounce (forming an ascending triangle technical price structure). While bullish compression suggests strong underlying demand, the level of upside resistance would appear to reflect hesitancy to extend upward moves without new catalysts.

Momentum, as measured by the 14-day RSI, hovered slightly above the neutral zone (mid-50s to low-60s) for much of June. This indicated neither strong overbought nor oversold conditions, supporting the consolidation narrative.

Technical support levels aligning with the 50-day moving average and Fibonacci retracement levels ($3,320 and $3,350 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 June, net speculative positioning in gold (non-commercial positions) increased month-over-month for the first time since January, ending four consecutive months of declining long positions. This present lower level of speculative appetite is consistent with the consolidation phase in the gold market which we have already described. The gold futures curve remains in its typical upward-sloping (contango) shape.

Outlook for the gold price

The price of gold bullion finished June flat month-over-month at US$3,303 per ounce (+0.4%) for the second consecutive month, continuing to consolidate following a period of very strong appreciation. The month saw catch up trades in other precious metals such as silver (+9.5%) and platinum (+28.5%). We note that silver is still lagging gold by 18 percentage points year-over-year, while platinum is lagging gold by 6 percentage points.

At the end of February, we forecast that should the current level of gold demand from ETFs be sustained (or accelerate), coincident with central banks continuing to buy at historically significant volumes, we would expect to see a powerful upward move in the gold price over a relatively short timeframe (i.e. US$400-500 per ounce over three to six months), all else being equal.

While this played out as we had predicted, we believe that Liberation Day will have significant long-term consequences, lighting the fuse on a much larger move for the gold price. We now see material upside to the gold bullion price relative to recent all-time highs (intraday US$3,500 per ounce).

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

We believe the bull market in gold and its positive impact on the profitability of gold miners is coming into focus for more investors with gold mining equities (+3.0%) posting gains notwithstanding little movement in the gold bullion price. You will recall that a gold miner’s profit margin typically expands (and contracts) by roughly double the movement in the gold price.

Within gold equities, the most striking observation during June was the underperformance of Australian-listed gold miners (-10.5%) which contracted materially while those listed in the US (+9.5%) and Canada (+4.5%) rallied. We attribute this primarily to profit taking following broker research downgrades on the sector.

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”. The comments included describing Evolution Mining (which we do not hold) as “expensive”.

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.

Gold miners exposed to critical by-products (such as silver and copper) were the best performers (+11.7%) driven by the price of silver (+9.5%) and copper (+5.3%) outperforming gold (flat). While mid-caps (both senior and emerging) were the laggards in a relatively quiet period for stock specific news flow ahead of company reporting kicking off in July.

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 74.1% while the gold miners index has actually declined 21.0%. 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).