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 very strong return during September, outperforming its benchmark (the universe of established gold miners) and gold bullion. Please refer to the monthly report for detail specific to the performance of the fund.
• In our view, diversified investors which are not directly invested in gold bullion and gold miners, are underweight the biggest trade in global markets presently. We anticipate material new capital flows are yet to enter the gold market.
• Can the gold price go higher? We encourage investors to consider the gold price forecasts from the investment banks which 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.
• If you are not already invested in the gold sector, you haven’t missed the boat. The fundamentals of gold bullion are compelling, and the gold mining sector is 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.
• The potential for the global trade war to cause an inflation shock 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

The breakout continued in September with the price of gold bullion finishing the month at US$3,859 per ounce (+11.9%). Supported by strong fundamentals (elevated demand and tight supply), we believe this move is a decisive shift and a catalyst for further upside. Gold equities experienced a powerful, broad-based rally across all sub-sectors and regions. We believe the re-rate trade that we have been writing about since mid-2024 has finally started.

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);
• 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

Much weaker than expected employment data was a contributing factor to the Federal Open Market Committee (FOMC) cutting interest rates during September, notwithstanding elevated inflation. Interest rate expectations for the next six months continue to oscillate, with between one and two cuts priced in before the end of the year.

Inflation data

The Core Personal Consumption expenditures Price Index (Core PCE) was steady at 2.9%. While this was in line with market expectations, it remains stubbornly elevated which is concerning as we await the inflationary impacts from US-induced trade war. 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 over the next 6-12 months – we see the potential for the impact to be material.

Employment data

The labour market is suddenly showing a concerning level of weakness, adding only 22 thousand jobs during August (you will recall that 100 to 150 thousand is considered to have a more or less neutral impact on unemployment). 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 slightly weaker than expectations in September at 94.2 and the prior reading of 97.4 in August. 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 – while interest rate cuts may provide some relief, the other factors do not appear to be headed in the right direction in the short term.

Market impacts

Bonds

The bond market benefitted from the cut to US interest rates with the Global Aggregate Bond Index (+0.7%).

The yield curve flattened as illustrated by the value of 1-3 year US Treasuries (unchanged) relative to 7-10 year US Treasuries (+0.3%) and 20+ year US Treasuries (+3.2%). The yield on 10-year US Treasuries ended the month 8 basis points lower at 4.15%.

Recent concerns in relation to the long end of the curve appeared to ease with yields on 20-year US Treasuries falling 17 basis points. You will recall that we have been speculating that a yield of roughly 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 (US Dollar Index unchanged at 98) was unchanged month-over-month. 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 tariffs, budget deficits as well as political interference with the US Federal Reserve and government agencies such as the Bureau of Labor Statistics.

Commodities

Hard commodities were strong with the exception of crude oil (-1.6%) as OPEC production increases were implemented. Precious metals led the charge, although gold (+4.8%) was once again outperformed by the ‘precious-industrial metals’ such as silver (+17.4%), platinum (+14.9%) and palladium (+14.3%). Copper (+4.1%) was the best performer of the industrial metals following unexpected supply disruptions at major mines.

Equities

Broad-based momentum propelled global equities (+3.1%) higher.

Gold bullion markets

Central banks

Based on data reported so far, central banks reported 19 tonnes of net purchases during the month of August (the latest data available – central bank gold purchases are not always reported completely, or in a timely manner, or in some cases ever). While the amount was above the prior month’s 10 tonnes and was at the lower end of the 20-30 tonnes per month 12-month average, the continued momentum notwithstanding the recent price appreciation is a positive factor. While Kazakhstan, Turkey, China and the Czech Republic were once again the largest buyers, this month they were joined by Bulgaria, Uzbekistan, Ghana and Indonesia with modest purchases of 2 tonnes each.

You will recall that central banks 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 around 10%.

We believe that elevated gold demand from central banks is a secular (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 (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 3,700 tonnes valued at US$400 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 (nearly US$38 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 their behaviour is cyclical and can contribute materially to both demand and supply (depending on whether they are in an accumulation or liquidation cycle). These cycles are driven by 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).

September saw net inflows into gold bullion ETFs of 145.6 tonnes which was the highest since March 2022 when Russia invaded Ukraine. 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 approximately US$460 billion (approximately one-tenth of Nvidia’s market capitalisation).

While total ETF gold holdings are volumetrically just short of the highs achieved during the COVID-19 pandemic (3,807 tonnes relative to 3,929 tonnes in November 2020), they are 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 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 had 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). We believe the breakout above this overhead resistance level is a decisive shift and catalyst for further upside.

Momentum, as measured by the 14-day RSI at 81 indicates gold is technically overbought which may constrain further upside in the immediate short term until the recent upward moves have been consolidated.

Gold futures

While net speculative positioning in gold (non-commercial positions) ended September 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 gold futures curve remains in its typical upward-sloping (contango) shape. The level of speculative positioning and its trajectory since the middle of the year is likely to be neutral-to-modestly constructive for the gold price going forward, acting as dry powder should further macro catalysts arise.

Outlook for the gold price

The price of gold bullion finished September stronger at US$3,859 per ounce (+11.9%).

We expect the present gold price breakout to hold and to continue to test new highs underpinned by robust demand from central banks seeking to diversify away from US Treasuries and exchange traded funds which remain in an accumulation cycle. It is critical to appreciate that we haven’t seen this ever before – the last major uptrend from 2001-2011 was driven by ETFs accumulating gold while central banks were actually sellers. Strong demand is combined with a tight supply side (gold mining accounts for approximately three-quarters of total gold supply) creating 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 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.

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.

Gold mining equities

Gold equities continued their powerful, broad-based rally across all sub-sectors and regions which strengthens our conviction that the re-rate trade (where the very strong fundamentals of gold miners is recognised, driving valuation multiples upwards towards fair value) that we have been writing about since mid-2024 has finally started.

We believe the catalyst was the July-August financial reporting season in which a majority of gold miners demonstrated good cost control (which was counter to the general perception that higher gold prices will be matched by higher production costs). We sense markets are beginning to recognise the margins and cashflow that gold miners are generating (EBITDA margins comparable to Nvidia), with considerable leverage to higher gold prices which are breaking out to new levels. All of this with un-levered balance sheets while trading on valuation multiples below fair value and historic norms.

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 103.4% while the gold miners index has only risen 15.4%. 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. 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. 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, 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).