Equity Research; Gold fever to continue
Gold fever to continue…
Gold has ‘broken out’ consistently touching record highs, tripling in nominal US$ since 2015. As the graph points out, its angle is c. 90° since 2023.
source: www.curvo.eu
In 21st Century the stars have aligned for gold, a repricing often attributed to:-
- Gold demand during China and India’s buying seasons. China has 2 gold buying ‘seasons’, Chinese New Year (February) & September public holidays. India has high gold jewellery demand over the November – February wedding season and Diwali in October.
- Global ‘emotional’ appeal, i.e. evidence of consumer ‘stacking’ of gold bars, coins, heirlooms in the USA, Middle East, China
- Gold’s ‘primacy’ due to a lessening of competitive factors, gold has taken market share from other precious metals such as platinum and gemstone alternatives such as diamonds, pearls.
- Booming demand from ETF (exchange traded funds) and ETC’s (exchange traded commodities) such as iShares Physical Gold (SGLN), SPDR Gold (GLD), Gold Bullion Securities (GBSS), Wisdom Tree Physical Gold (PHGP). These ETFs/ ETCs buy significant quantities of gold.
- The need for assets providing effective portfolio diversification.
As the graph shows, gold is a good diversifier with returns totally independent of equity market returns. Gold performed strongly in the years preceding and post the 2008 financial crisis.
Interestingly gold has often outperformed cash – its 1979 return of 130% was c. 10x the USD cash yield (13.5%) in that year. There appears an inverse correlation to USD cash returns.
source: www.curvo.eu
Gold was a beneficiary of global zero interest rate policies (ZIRP) from January 2009 to March 2022 and quantitative easing (QE) which saw central banks create digital money at the drop of a hat. Arguably QE and the money supply / inflationary pressures it unleashed undermined cash as a viable asset class doing more harm than good.
So what now? According to the World Gold Council over 2024 the supply & demand for physical gold was close to equilibrium.
a) Supply Factors:
Mine production: 3,645.8 MT
Gold / scrap recycling: 1,366.8 MT
Gold net hedging: -54.1 MT
Total Supply: 4,958.5 MT
Gold supply this decade has been stable for new mined production and scrap recycling. Short-term the gold supply at c. 5,000 MT p.a. looks pretty fixed.
b) Demand Factors:
Jewellery: (comprising consumption, inventories) 2,206.8 MT
Technology (Electronic, other industrial demand, Dentistry) 326.2 MT
Investment: (Gold Ingots/ bars/ coins, ETF) 1,181.9 MT
Central Banks net purchases 1,089.4 MT
Hence Total Demand: 4,804.3 MT
The data for 2024 suggests supply and demand are broadly in balance with a slight oversupply that would form an addition to global inventories.
c) The Return of net purchases, central banks are steady net buyers
Global central banks have played an important role in reverting to significant gold purchases with steady net purchases over 2024 and 2025.
China is thought to understate its official gold reserves (2,296 MT) which have been purchased from negligible levels in 2005, its objective being to prevent market disruption. It is accumulating gold both from internal sources and via its African mining ventures. China could have >2x its official data.
China’s Gold Reserves from Dec 1977 to Feb 2025
Source: www.ceicdata.com
One novel approach in Uganda is an open offer plan to buy up to 2 MT of gold from artisanal miners directly- an attempt to tackle the black market in gold.
d) Increased ETF demand in 2025 especially in US ETFs
This year ETF demand has been strong into North America
Total ETF holdings are near record levels with Q2 2025 data showing 3,692 MT held at ETFs comprising 1,906 MT in North America, 1,398.7 MT EU, 316.6 MT Asia and 69.8 MT others (mainly emerging markets).
A word on what Americans call gold ‘stacking’; American consumer purchases of gold bars from Costco (at c. 1% mark-up) that become so popular that in May 2025, the retailer had to limit purchases of 1oz bars and 100g ‘biscuits’ to just 1 per day (previously 2). This has been significant US retail demand at Costco especially given the product is sold, without insurance cover, on a non- refundable basis.
Overall we conclude that both: ETF and retail demand from North America, consistent central bank net purchases and strong Chinese demand, that is possibly partially obscured, is behind the gold rush.
21st Century changes
This is somewhat anecdotal but the last 25 years has been a fascinating period, baffling, complex, pregnant with innovation and ‘alternative’ methods, coupled with societal change, generational divides, culture wars etc. There has been significant geopolitical stress and the rise of dictator regimes alongside the erosion of institutional checks and balances.
Whether digital currencies or alternative power, new technology is a supporting infrastructure and fact of life of the global population. The pace of change is felt by many as something intrusive, hard to control. There are mindset pressures on the investing public that can result in bewilderment.
Paper money, or plastic money, these days has been discredited. Not by the hyperinflation of the 20th Century but by excessive global government debt that encourage inflationary policies that debase cash. Government efforts to tackle debt have been very weak in the last decade.
Gold has the inherent strength of being relatable, physical, globally recognized, enduring, something that will not change and likely to appreciate because its rate of supply growth is lower than growth in the money supply. It is still standing at the bar, having stood the test of time.
Gold’s Bear Case…..is brought to you by Uncle Warren
Anyone supporting the gold bull case rapidly runs into Warren Buffett’s pathological dislike of gold. Buffett has been scathing, ‘it just sits around, it can’t do anything, it’s a non-producing asset, does not interest us at all’. It is a ‘fear gauge, you hope someone more scared than you, will buy it from you for more than you paid’.
The legendary investor described gold’s annual returns as low (‘about 0.1%-0.2%’) and linear going back 2,000 years, not including its necessary insurance cost.
Speaking in 2005, Buffett remarked, ‘when we took over Berkshire, gold was at $20 (/oz) and Berkshire was $15 (per share), now gold is $1,600 (+80x) and Berkshire is at $120k (+8,000x)’.
Now, 20 years on, gold is $3,600 (+180x) and Berkshire Class A are $745k (+49,666x).
Buffett’s is an interesting perspective, damning, true, one hard to argue with, even if one instinctively might disagree. Yes, gold has underperformed Berkshire Hathaway shares. But so has almost everything else! Gold does not produce an income. True. But that is less of a problem these days – neither did Google, Amazon or Meta or Microsoft (for many years).
Buffett and Munger often vetoed gold centric ideas, so Berkshire managers stopped mentioning them. But on one occasion, in Q2 2020, Berkshire Hathaway invested in Barrick Gold triggering commentary that the Sage of Omaha must have ‘changed his mind’. Possibly aware of this conjecture, but likely for other reasons, by Q1 2021 Berkshire had exited its Barrick Gold shareholding. What caused this apparent lapse?
The suggestion was the Barrick Gold holding had been an opportunistic one off. A decision undertaken by a Berkshire manager, in the ‘style and timing of Buffett though not by him’, in the way pupils of great painters churned out paintings similar to their tutors’ work, for example this occurred with Leonardo and Rembrandt. It was a ‘fake’ position by an understudy, so the theory ran.
Another plausible explanation. It was Buffett’s idea, he did more than ‘sign off’, he had a brief ‘fling’ with gold. Each to his own.
But I do disagree with Buffett in one respect. I am not criticizing gold on the grounds of poor returns. Gold has not delivered poor returns in my lifetime. Gold has had a remarkable run, since 2000, and since 2020 delivering 68% gains. The return in 2025 YTD is amongst the top five annual returns recorded.
Gold has had impressive runs before. It started 1970 at $35/oz and ended 1979 at $540/oz – a 15x increase. This occurred despite the headwind from US interest rates which rose from 9% to 13.75% in the Seventies. The Iranian Revolution helped gold’s 1979 performance.
After gold’s 1970’s ‘heyday’, from 1980 to 2000 came ‘the hangover’ culminating in the amusingly titled ‘Brown bottom’. From 1999-2002, Chancellor Gordon Brown auctioned 395 MT of the UK’s gold reserves at an average of $275/oz. The UK’s gold was sold for a pittance, but Gordon Brown quickly recovered from this debacle, and eventually became PM. The UK retains 310 MT of gold (44% of previous holdings).
The ‘Brown bottom’ shaped the gold discourse for a few years, the thinking ran, what if other central banks auctioned off their gold? That would create an overhang lasting years. But no other central bank followed the UK example.
In fact, there is evidence of central banks accumulating gold reserves and reducing US Treasuries. The Trump Administration has shaken confidence in the US dollar and its supporting infrastructure in the form of the US Federal Reserve. The alienation of allies, and creditors alike, via the US tariffs, are concerns given the need to finance the US current account deficit. Furthermore, overseas US Treasury holdings (US$3.9trn) could sharply reduce, if the wrong decisions are made, and Fed independence is lost. Indeed, dragging the Federal Reserve chairman and other Fed board members though the mud, as Trump has done, is entirely counterproductive to US financial credibility. The Fed’s perceived vulnerability is a major support for gold heading into 2026.
Screenshot
source: Financial Times
Official data shows that gold, at current market prices has almost overtaken holdings of US treasuries.
Conclusion
Is the current gold mania also a global, more durable ‘fling’? In our view, no. Because gold’s buyers are not solely return orientated. The masses of Chinese and Indian Generation Z middle class are not daily marking to market their gold dowries and nor are American stackers or global central banks.
Gold’s flexibility serves numerous functions, alongside being hard to trace, movable, easily understood, liquid. Gold has a good reputation as a useful toy for investors worried about digital currency bubbles/ tech bubbles or simply wanting to diversify tech risk or replace US Treasuries.
The need for good diversifiers is vital, due to the growing population of US$1trn companies and hence mega cap concentration that has crowded out other equity exposure in the global blue chip ETFs.
‘Safe’ assets are normally premium assets. Gold is at record highs, certainly expensive, possibly with a $500 / oz premium for 2025’s cocktail of geopolitical uncertainty and signs of a new East/ West Cold War type split.
However global interest rates are ratcheting down slowly and providing yet another crutch. Overall our expectation is US$4,000/oz will arrive by Xmas 2025.
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