Schroders' Global Head of Gold and Commodities Fund Management, James Luke, highlights that the structural forces underpinning gold prices continue to hold firm. Recent US intervention in the yen and long-dated Treasury markets has reinforced the firm's conviction that the "currency debasement trade" is swiftly emerging from dormancy. On the other hand, gold miners are showcasing robust profit margins, solid balance sheets, attractive capital returns, and compelling valuations, making them notably appealing for investors.
Gold prices have encountered multiple headwinds in recent months, starting with hawkish remarks from Federal Reserve Chair Kevin Warsh in February, followed by heightened rate hike expectations triggered by the Iran conflict, which dampened net gold purchases from emerging market central banks. Despite these pressures causing a 30% decline in gold prices from peak to trough, the two major structural drivers of the bull market—currency debasement and de-dollarization—remain actively in play.
From various perspectives, the first direct intervention in the yen since 1998 can be viewed as a positive factor for gold. More crucially, market participants believe the US's underlying motive is to shield its domestic Treasury market. After all, Japan could fund its intervention by selling dollar-denominated reserves, including US Treasuries, to buy yen. However, with the US asking the market to absorb substantial fiscal deficits and massive refinancing needs, additional selling of Treasuries by major overseas creditors is certainly not desirable for Washington.
Luke points out that this intervention was executed through euro sales, coinciding with long-term Treasury yields surging to uncomfortably high levels. The market interprets this not only as a hint of potential more aggressive measures to cap long-end rates but also as a reflection of US reluctance to see allies tap their dollar reserves. Such an attitude inherently accelerates the erosion of global confidence in the dollar as a reserve asset.
Recently, in apparent response to rising 30-year Treasury yields, Bessent abruptly announced a doubling (or more) of long-bond repurchase operations, increasing the size for Treasuries maturing in 10 years and beyond from $2 billion to at least $4 billion per operation. Officially, the expansion aims to provide additional liquidity to the market. However, privately, the market views this as another step toward fully implementing yield curve control. Luke notes that this market perception ignites the currency debasement wave.
As gold prices break out, gold equities have surged significantly. Despite the strong rally, valuations for gold miners relative to spot gold remain extremely low; in many cases, share prices imply gold prices well below current spot levels. Investor concerns about energy-driven cost inflation are justified, particularly after the 2022 energy crisis. Yet, based on second-quarter 2026 earnings reports, cost performance has even exceeded expectations, and fears of energy inflation spreading and causing guidance misses have not materialized.
Of course, vigilance remains necessary entering the second half of 2026. Even with rising gasoline and diesel prices, gold miners' profit margins remain exceptionally strong and are not yet fully reflected in valuations. Current mining margins are more than double their 2020 peaks, while balance sheets have improved significantly. Management continues to adhere to capital discipline, and overall industry capital returns remain very robust.
Share buybacks have become particularly important. Many gold miners are returning a substantial portion of free cash flow to shareholders through dividends and repurchases. As share counts decline, per-share metrics will make gold equities increasingly attractive. From an industry perspective, the firm prefers to view buybacks as "per-share production growth" accumulating over time. In a sector where resources deplete with extraction, the option to achieve per-share production growth through buybacks or actual output increases holds significant value.
In summary, companies with the most potential are those where valuations have yet to reflect strong cash generation, free cash flow is nearing an inflection point, or specific corporate catalysts could unlock intrinsic value. If investors can look beyond near-term market consolidation and focus on the horizon, gold equities are poised to deliver compelling excess returns as the next phase of the bull market unfolds.