“Gold is the universal language understood by all nations” – George Herbert, English poet
For this quarter’s letter we are going to spend time discussing one of the biggest stories of 2025 thus far: the performance of gold.
The main questions we will discuss are what is going on with gold, and why has it risen so much in 2025? Also, how has Avenue’s investment strategy been prepared for this?
As of the writing of this letter, gold has reached the price of $4,000 U.S. per ounce which is up more than 50% on the year. This is the best year for gold in modern history.
Before examining the current moment for gold, let us first provide some historical background.
Gold serves a special place in the history of the world. Its use as a monetary asset and exchange of value dates to early recorded history.
It is believed that the earliest use of gold as an exchange of value dates back to the reign of Croesus in 550 – 600 BC in the Kingdom of Lydia in present day Turkey. The Lydians were the first people to learn how to refine gold and silver into bi-metallic coins.
These coins were named Croesids, after their King Croesus. The coins were unique because they were minted with a consistent amount of gold content, which made them attractive and stable relative to other forms of early money. This created an element of universal accepted value for these coins that garnered the trust in gold to serve as a form of currency more than 2,000 years ago.
This trust and confidence in the stability of gold as a monetary asset also served as the bedrock of early continental European financial markets as well as those in Canada and the United States. Notably, Canada was on a gold standard from 1854 until the outbreak of World War I in 1914. After the War there was a brief effort to return to the gold standard but both Canada and Great Britain officially left the gold standard in September 1931 during the Great Depression.
Below was the front page of the Globe & Mail on September 21st 1931- the day after Britain left the gold standard.
Meanwhile in the United States, during the Great Depression, President Franklin Roosevelt famously issued Executive Order 6102 in April 1933, which made it illegal to hoard gold in the United States. Citizens were forced to turn over any gold holdings above a certain amount to their local Federal Reserve Bank.
Once this turnover was completed, the United States passed the Gold Reserve Act in early 1934 which brought the gold under possession of the U.S. Treasury, and the U.S. dollar was subsequently devalued relative to gold. These were very controversial measures at the time, but it was argued they were needed to help alleviate the deflationary pressures on the economy during the early 1930s.
In 1944, after the end of World War II, the U.S. and fellow Allied nations met at a conference in Bretton Woods, New Hampshire, to discuss a new international financial system. They agreed on a new international monetary system and the gold standard was resumed. This new international version of the gold standard pegged the U.S. dollar at $35 per ounce of gold and created the beginning of the U.S. dollar’s role as the global reserve currency.
The gold standard agreed to at Bretton Woods provided a stable global monetary system in the initial post-war period, however, it experienced growing pressure in the 1960s when the United States began high levels of government spending on Vietnam and domestic social programs. This led to a concern about the stability of the U.S. government spending levels. As a result, foreign governments in France and Britain began withdrawing their U.S. dollar reserve assets and converting them to gold. To maintain the Bretton Woods system the U.S. would have needed to cut back on government spending, or significantly raise interest rates, which would have been very politically unpopular.
In August 1971 Richard Nixon made the decision to officially end convertibility of the U.S. dollar into gold. This decision effectively ended the international gold standard that had existed since 1944 and put the world on the current fiat-based monetary system with floating exchange rates.
Gold has had a long and significant history for financial systems, both ancient and modern.
In times of crisis, investors have turned to gold as a perceived safe-haven asset because it has been able to protect the purchasing power of savers and investors in previous crises.
When we examine the current moment in time, we believe there are two main factors that have contributed to the rise in the price of gold thus far in 2025.
Government debt levels are at historic levels
Government debt levels in the Western world are at historically elevated levels. Debt levels were high and rising prior to 2020, and the additional fiscal spending that occurred in the aftermath of the pandemic has pushed debt levels to the highest level since the 1940s.
The unsustainability of Government debt levels is a major concern because it means there are only two options to solve the problem: fiscal austerity through budget cuts or a significant increase in taxes, or, inflationary policies that lower the real burden of the debt.
There is a reason why inflationary policies are the path of least resistance and that is because fiscal austerity and budget cuts are incredibly unpopular politically from the outset. Meanwhile, at the outset, inflationary policies can have an inebriating effect because the initial impact is generally a strong economy and rising asset markets.
The United States debt level currently stands at $37.8 trillion as of October 2025. Contributing to the increase in gold prices is the understanding that this debt level is expected to rise significantly over the next decade which raises the concern of the eventuality of higher levels of inflation.
International Central Banks buying Gold
The other key reason contributing to gold’s rise over the past year is the rapid accumulation of gold by central banks.
As part of their ongoing operations, all central banks around the world have a portfolio of assets. These portfolios are comprised of assets that include foreign currencies, government bonds, as well as assets like gold.
The principal investment that central banks have traditionally owned are U.S. Treasury bonds. This is because they are safe and liquid assets, meaning they are easy to buy and sell.
In 2022 there was a change in behavior among central banks that occurred after the Russian invasion of Ukraine. During the beginning of the war the U.S. Treasury made the decision to freeze the assets of the Russian Central Bank. This decision meant that Russia no longer had access to their U.S. Treasury holdings, which is a very significant financial sanction.
Although one may argue this decision was justified, the financial implications were such that it created motivation for other central banks around the world to begin moving some of their assets into other investments like gold.
The chart below highlights this phenomenon. Central bank assets are now comprised of 27% gold versus half of that between the years 2000 and 2020.
If we zoom out on a longer time horizon, we can see that although this level of 27% is higher for recent history, in the 1970s and 1980s central bank asset portfolios held a much greater percentage in gold.
It is reasonable to expect that this number will continue to increase over the next decade.
Avenue’s Gold Strategy
Avenue’s investment strategy has held a core weighting in gold for the last 22 years. More recently in 2019 we became concerned with the growing level of U.S. debt and the potential implications it would have for investors, which led us to increasing our weight in gold at that time. This topic was the core theme in our Q1 2024 Letter.
As long-term investors we believe that gold has an important role to play in a diversified portfolio because of the benefit it can provide during periods of uncertainty and inflation.
In 2022 and 2023 we further increased our weighting in gold because of the growing risks we saw on the horizon. At the time, gold remained very unpopular with investors. The decision to increase our gold investments at that time has worked in our favour because of the strong performance for gold in 2025.
Our two core investments in the gold sector since that time have been Osisko Gold Royalties (OR) and Wheaton Precious Metals (WPM). Both Canadian companies are royalty businesses which are a type of investment that offers strong long-term economics and consistent profitability in the gold sector.
Gold royalties are a unique type of business that provide capital to help gold companies finance the cost of development and expansion of a mine. In exchange, the royalty company receives a royalty payment in perpetuity based on a given level of mine production. Royalty companies have a key benefit in that they are not responsible for the ongoing operation and building of the mine. The business of maintaining and building mines can be highly uncertain and subject to variable costs that end up causing large swings in the profitability of mining companies.
Royalty companies meanwhile receive a steady and predictable cash flow once a mine is in operation. A royalty business is also more diversified because the business can have royalty streams across different geographies and mining companies. This diversification also lowers the risk.
We believed Osisko Gold Royalties was an attractive investment opportunity when we purchased our shares in November 2023 because it was a business that had royalties predominately in the top mining jurisdictions of Canada, the United States, and Australia which collectively make up 80% of net asset value for the company.
Owning royalties in the top mining jurisdictions is important because it allows us to have greater confidence in the assets that are owned by Osisko.
Below is a map from Osisko Royalties October 2025 Presentation highlighting the geographical breakdown of their royalty assets.
We believe Wheaton Precious Metals is an attractive royalty business because of its exposure to silver royalties which comprise 39% of its revenue. We see the potential for strong continued demand for silver as an industrial commodity because of the growth in solar electricity, as well as the growing demand for silver as a component in the building of AI data centres.
We also like Wheaton’s royalty portfolio because of the long production timeline. Wheaton’s current portfolio of assets has a current royalty life of 27 years, plus an additional 37 years of indicated and inferred production.
We expect our gold investments to continue to play an important role in the Avenue portfolio over the next decade as governments around the world continue to grapple with increasing debt burdens.
The fiscal and monetary policy response to these increasing debt burdens is likely going to be supportive for the future price of gold and silver.
