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From gold queues to a cooler market
Six months ago, the queue outside precious metals dealer ABC Bullion extended down Sydney’s Martin Place as retail investors lined up to buy and collect gold. It came after a very strong 12 month run in the gold price, and Michelle says that wave of retail buying was in some ways the peak of it.
Since then, a lot of the heat has come out of the market. Inflation has picked up again, driven in part by renewed conflict in the Middle East. That has raised expectations of interest rate hikes, particularly from the US Federal Reserve, and the gold price has corrected somewhat as a result.
Genesis Minerals: a clear pathway to growth
Gold miner Genesis Minerals is held across three of our Australasian equity funds and has been a strong contributor to performance over the past 12 months. The share price is slightly off its highs, but Michelle still sees upside.
Interestingly, the team’s reason for owning the company today is different from why they first bought it.
The key now is Genesis Mineral’s transaction with Vault Minerals. The two miners’ tenements sit side by side, which creates significant synergies through shared infrastructure and the milling capacity acquired through Vault. Michelle sees a clear pathway to 700,000 ounces of gold production as a merged entity. That would put it in the mid-to-top tier of Australian gold mining companies. The founder is still running the business, and the balance sheet can fully fund the merger.
Rates are biting, but valuations are compelling
It’s been a tough year for Australian consumers. You can see that in the ASX Small Ordinaries index, which has performed poorly compared with markets like US large caps.
Australian rates changed direction in November 2025, moving from cuts to hikes, and there were three hikes earlier this year. Hopes of a pause have faded. Non-tradeable inflation (wages, electricity, healthcare and housing) is persistent and GDP growth is strong, so the economy is running hot. Markets now expect one more hike before the end of the year, possibly two.
That’s a headwind for smaller companies, but Michelle notes much of it is already priced in. Small cap valuations are as attractive as they have been in 20 years.
A two speed economy
Michelle describes Australia as a two-speed economy.
Households are struggling with higher rates and policy changes from the last federal budget, and that’s weighing on credit and spending.
But the investment economy is running well. Spending on AI, resources, defence and infrastructure is supporting growth, and a number of small caps are well placed to benefit.
Company fundamentals – key financial and operational metrics - are supportive too.
Share purchases by founders, directors and management teams is elevated, and buybacks are well above where they’ve been over the past 24 months.
So, is she optimistic about returns increasing in 2027? “Cautiously optimistic,” says Michelle.
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