Commentators were quick to call the top and suggest a similarity with 2011, where gold peaked in September and began a long decline of over 40%.
We do not see a valid comparison between now and 2011. Instead, we see the following as contributors to recent days’ falls:
• The move up since late August had been particularly fierce at over 30%. This represented the quickest gain of US$1,000/Oz on record as participation broadened. Was this frothy? Yes. Does it exhibit signs of a secular top? We don’t think so.
• The move higher in silver, on the back of a squeeze in London availability, contributed to the broader rise in precious metals. This is now easing as silver starts to get delivered to London, and the silver price has fallen back through US$50/Oz.
• The lack of US economic data resulting from the government shutdown beginning October 1 has fed uncertainty.
• Indian demand, having been very strong, has paused temporarily for Diwali.
Schroders’ view
The market has experienced a natural correction within a multi-year bull market. We continue to view this bull market as incomparable with prior bull markets in terms of the breadth and depth of potential monetary demand. If, as we see it, this is the “Mount Everest” of gold bull markets, while we are well into the foothills, there is a long climb yet to reach the peak. This is a bold view and one we consistently test. Is the thesis wrong? Or is it priced in?
There are two questions we continually return to:
1. Are the secular fiscal and geopolitical trends driving gold demand resolved, and a “new normal” established?
“Geopolitical trends” captures a great deal, but would include the shift to multi-polarity in the order of global powers, alongside persistent tensions between the US and China. “Fiscal trends” covers the rising debts and deficits in many large economies and the drift toward fiscal dominance. We believe that in both cases the answer is no: these trends are not resolved. The lack of certainty surrounding these mega trends has implications for hedging demand.
In addition, these two trend factors – geopolitical and fiscal – are self re-inforcing. For example, the scale of industrial supply chain re-ordering required by any meaningful decoupling from China, will arise at a time when fiscal headroom is already extremely limited. Currency-wise these trends are less a threat to the dollar per se, and more a threat to the wider fiat currency status quo generally. Not everyone shares this view. But those who agree with us should be holding the course.
2. Have the capital pools that are moving into gold to hedge these secular risks exhausted their potential demand?
In “capital pools” we include central banks, other investor pools of global capital and households. Again we think the answer is no.
• Emerging market central banks’ gold reserves, as a share of total reserves, are only 12% following the large move in gold this year to date. Holdings with developed market central banks are above 45%1. Surveys continue to suggest demand is broadening, and we expect significant buying support if prices fall.
• People’s Bank of China reserves (on official data) stand at 7%. We doubt Chinese official demand is fully spent for various long-term strategic reasons.
• Staying on China, Chinese households continue to rate gold as the top investment for the next 12 months. Chinese households continue to hold US$23 trillion in deposits with commercial banks.
• Demand in other nations such as India and Japan has remained strong even at high prices. Feedback from bullion banks has noted Indian clients paying premiums at levels not seen since the sharp pullback in gold prices during 2013, as well as sharp increase in large bar demand from Japan. The 2013 period covered a downturn in gold when Asian demand picked up in response to low prices. In the current market, broad large bar demand has been strong, despite pricing at or near all-time highs.
• Exchange traded fund holdings in the West remain below 2020 highs in ounce terms (even if the nominal value of those has risen rapidly since 2020).
• Institutional investors’ allocations to gold are mixed. At Schroders, the Multi-Asset Team have been among the larger average percentage holders. Many investors hold zero. A rapid move to allocations such as 60/20/20 (equities, bonds, gold) or 60/20/10/10 (equities, bonds, alternatives and gold) as proposed by some large institutions would not be feasible in the short run without much higher prices.
Our conclusion is that without significant change on the geopolitical or fiscal fronts, gold holdings within portfolios (including EM central bank balance sheets, investor portfolios or households) will reach higher levels. Crucially, we believe it will be price that continues to do the work, not purchased volumes because of the sheer scale of the mis-match between global equity and fixed income aggregates and available gold supply.
What do the recent gold price falls mean for gold miners?
A key attraction of gold miners coming into this bull market has been their record cashflow margins. Do recent gold price falls change this story? Not at all. Current margins are around US$2,000/Oz on an all-in sustaining cost basis. Those margins peaked at US$1,000/Oz in 2020, and gold miners’ share prices are lower today (relative to the gold price) than they were then.
Gold prices averaged US$3,430/Oz in the third quarter (vs.3,250/Oz in the second) and already the signs are we will see another round of record financial results. For the fourth quarter, prices would need to fall to US$3,200/oz on average to result in a quarter-on-quarter decline.
Clearly a drop in the gold price of that scale – it would need to be in the order of 20% and then remain at that level – is not impossible, but we think it highly unlikely.
Consensus gold price forecasts remain US$300/Oz below spot prices in 2026 and US$1,000/Oz lower in 2027, so room for upward earnings revisions remains large. Producers’ production profiles are generally skewed to the back half of 2025, with many expecting the strongest quarter of production in the fourth quarter. We expect to see record free cash flow and upsized returns programmes. Assuming that this consolidation phase leaves the gold bull market intact, which is our base case, further dislocations will open up some very interesting opportunities.
For further background, read our previous paper: The quiet boom in gold equities
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