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Franklin Gold & Precious Metals returned 184% in 2025. Most hedge funds were positioned for soft landing. Here's what positioning discipline vs. narrative chasing actually means.
The number looks absurd in retrospect: Franklin Gold & Precious Metals Fund returned 184% in 2025. It was the top-performing fund in the UK investment fund universe. Gold hit $4,300 per ounce. Silver hit $60. Palladium surged 80%. Meanwhile, the majority of hedge funds, including the most celebrated systematic and discretionary strategies, underperformed a single-asset play that most of them dismissed as unsophisticated. The Bank for International Settlements (BIS) noticed something else: for the first time in 50 years, both gold and US stocks exhibited simultaneous "bubble" characteristics. That's not normal. That's a signal. And almost nobody positioned for it. This is where the disconnect between narrative and positioning becomes visible. Most hedge funds spent 2025 telling a story: "Soft landing. AI driving growth. Fed pausing. Equities up." That's a coherent narrative. But narratives don't move markets. Regime shifts do. The managers who returned 180%+ in precious metals weren't smarter about gold. They were disciplined about regime. They forecasted inflation persistence. They positioned for geopolitical tension. They positioned for central bank diversification away from dollar exposure. And when the regime played out, their positioning captured it. The managers who didn't? They were positioned for a different regime, one that didn't happen. This is the most important lesson from the gold rally: Positioning reveals what you actually believe. Narrative is what you're comfortable saying.
The Setup: Why the Narrative Was Coherent (and Wrong)
Going into 2025, the consensus was defensible.
The Federal Reserve signaled a pause in rate hikes. Inflation was cooling. The "soft landing" thesis, growth without acceleration, was mainstream. AI was driving equity returns. Tech mega-caps (Magnificent Seven) were the narrative engine.
Hedge funds positioned accordingly. Long tech. Hedged duration risk. Neutral precious metals. This wasn't stupid. It was narrative-coherent. Every fund that built this position could explain it. "Rates are done hiking. Growth is stable. Equities attractive. No inflation risk."
The problem wasn't the narrative. The problem was the positioning didn't account for what actually happened in 2025:
1. Inflation Never Fully Cooled
Core PCE inflation remained sticky above the Fed's 2% target longer than anyone expected. Wage growth stayed elevated. Energy prices fluctuated, but geopolitical tension (Middle East, supply chain disruptions) kept a floor on commodities.
Result: The inflation-hedge case for precious metals wasn't speculative. It was real. And it got stronger as the year wore on.
2. Central Banks Diversified Aggressively
Central banks (China, Russia, India, Middle East funds) accumulated gold at the fastest pace in 30 years. This wasn't investment strategy. This was de-dollarization. As geopolitical tension between US/China intensified, central banks moved to reduce dollar exposure.
Result: Gold had a structural buyer that most allocators underestimated. It wasn't a speculation. It was a regime shift in global reserve management.
3. Geopolitical Risk Premium Returned
2024 ended with heightened geopolitical tension. 2025 didn't resolve it, it deepened it. This created a volatility premium and a safe-haven bid that benefited precious metals consistently.
Result: Equities got volatile, but safe-haven flows to gold were systematic, not episodic.
The Positioning Gap: Narrative vs. Reality
Here's where it gets uncomfortable for most hedge funds: They knew these three factors existed. They read the same Bloomberg terminals, the same regulatory filings, the same central bank data.
But they didn't position for them. Why?
Because narrative coherence is easier than positioning consistency.
If you say "soft landing, equities rally, no inflation risk," that narrative hangs together. You can defend it in client meetings. You can show your analysis supporting each piece.
But if you actually believed inflation would persist, you should have been short long-duration bonds and long commodities. Your portfolio should have reflected it.
Most funds believed inflation would be stickier than consensus, but they still held 60/40 equity/bond allocations because the narrative of "equities outperform in soft landing" was persuasive. They hedged with short calls. They trimmed exposure. But they didn't reposition.
The managers who returned 180%+ in precious metals made a different choice: they didn't just believe in the inflation narrative. They structured their portfolio to profit from it.
This is the distinction Confluence emphasizes when evaluating managers: positioning reveals conviction.
The Three Types of Hedge Funds in 2025
The gold rally created a perfect diagnostic for separating three types of managers:
Type 1: Narrative-Coherent Managers
They said: "Soft landing. Equities outperform. Gold is a speculation."
Their positioning: Long tech, neutral to short commodities, hedged duration.
What happened: They were right about the soft landing (growth remained stable). But wrong about the volatility (equities had 23% drawdown in August). And catastrophically wrong about the positioning (they didn't benefit from the gold rally that contextualized the volatility).
2025 Returns: +8% to +15%
The problem: They optimized for narrative coherence, not regime capture.
Type 2: Hedged Macro Managers
They said: "Inflation risks are real. We're diversifying across equities, bonds, commodities, and FX."
Their positioning: Diversified across asset classes. Long some commodities, but not overweighted. Hedged multiple directions.
What happened: They benefited from the gold rally (+20-40% in precious metals allocation), but they also owned equities and bonds that didn't rally as hard. Diversification protected them from losses, but it also capped upside.
2025 Returns: +18% to +28%
The problem: Diversification is mathematically correct, but it's also mathematically average. They didn't capture the full regime shift because they were hedged against being wrong.
Type 3: Regime-Disciplined Managers
They said: "Inflation will persist. Central banks will diversify. Geopolitical risk justifies precious metals allocation."
Their positioning: Overweighted precious metals. Underweighted tech. Positioned for multiple regime scenarios (inflation, geopolitical stress, dollar weakness).
What happened: When gold rallied 30%, when central banks accumulated at historic pace, when geopolitical tension drove volatility spikes, they profited. They weren't trying to be average. They were trying to capture the regime.
2025 Returns: +80% to +184%
The problem (for allocators): This approach requires conviction. And conviction requires accepting higher volatility and higher concentration in the positioning. It's not for every manager or every allocator.
The Deeper Lesson: Positioning Discipline vs. Narrative Comfort
The gold rally revealed something uncomfortable: most managers optimize for narrative comfort, not regime capture.
Narrative comfort is lower-risk professionally. If you say "soft landing, equities up," and equities do go up 12%, your narrative is vindicated. Even if precious metals rally 30%, you can explain it as a safe-haven trade (narrative adjustment). You didn't fail. You just missed an outlier.
Regime capture requires making a different narrative choice. If you believe inflation will persist, you need to believe that narrative despite consensus saying inflation is cooling. You need to position differently than the consensus. And you need to accept that if inflation does cool (soft landing happens), you'll underperform.
That's the trade-off. You either:
Match consensus narrative → lower risk of client criticism, but you can't outperform
Forecast regime differently → higher conviction required, but you can capture outsized returns
Most managers choose the first option. Franklin Gold managers chose the second.
The BIS Warning: Why This Matters for Allocators
The Bank for International Settlements flagged something critical in December 2025: for the first time in 50 years, both gold and US equities simultaneously exhibited bubble characteristics.
That's not normal. That means:
Markets are bifurcated. Some investors are fleeing risk (buying gold). Other investors are piling into growth (buying tech). These are not compatible positions. One group is wrong.
Regime clarity is ending. If you can have simultaneous bubbles in safe havens and growth assets, you don't have a clear regime. You have fragmentation.
Positioning matters more than strategy. In fragmented regimes, the managers who outperform are the ones who explicitly chose a regime position, not the ones who hedged.
For allocators, this is the uncomfortable implication: diversification works well when regimes are clear. But when regimes are bifurcated, concentrating your capital with managers who explicitly forecast the regime you believe in outperforms diversified approaches.
That's not conventional wisdom. That's what the gold rally proved.
How Emerging Managers Can Learn From This
The gold rally is instructive for emerging managers because it reveals what allocators are actually evaluating when they say they want "disciplined traders."
Allocators don't want traders who match consensus and hedge against being wrong. They want traders who forecast differently, position accordingly, and accept the consequences.
Here's what emerging managers should extract from the Franklin Gold Fund story:
1. Regime Forecast Should Show Up in Positioning
If you believe inflation will persist, your portfolio should reflect it, not through a small "inflation hedge" position, but through overweight exposure to inflation-resistant assets.
When allocators review your portfolio, they should be able to infer your regime forecast from your positioning. If they can't, you're not positioning with conviction.
2. Narrative and Positioning Should Align
You can't tell an allocator "inflation is sticky" and then hold a portfolio positioned for disinflation. That's the mismatch that reveals you don't actually believe your narrative.
The best managers show consistency: the regime they forecast and the positioning that reflects it are inseparable. You can disagree with their forecast, but you can't accuse them of inconsistency.
3. Volatility Is the Price of Conviction
Franklin Gold had significant drawdowns when gold corrected in March 2025 (down $200/oz). A diversified portfolio would have been less volatile. But a diversified portfolio would also have returned 28%, not 184%.
Allocators understand this trade-off. If you're going to position with conviction, they expect you to accept the volatility that comes with it. What they don't accept is hiding behind diversification while claiming conviction.
The Operational Implication: Infrastructure for Conviction-Based Positioning
Here's where Confluence becomes relevant: managers with conviction-based positioning need institutional infrastructure to support it.
When you're overweighted precious metals by 40% (vs. 5% benchmark), allocators need to see:
Explicit risk management policies articulating when you reduce the position (not "if we feel like it," but defined stop-losses and rebalancing triggers)
Clear reporting explaining the positioning and the regime assumptions beneath it
Transparent documentation that your position sizing aligns with your stated risk management limits
This is where many emerging managers break down. They can forecast regimes. They can position accordingly. But they can't document and communicate their positioning with the institutional rigor that allocators demand.
That's the infrastructure gap. And it's why managers with conviction often struggle to raise capital, despite proving that conviction works.
Conclusion: Gold Doesn't Teach Emerging Managers About Gold. It Teaches Them About Positioning Discipline.
The Franklin Gold Fund's 184% return isn't a signal that emerging managers should launch precious metals strategies. It's a signal about what happened when someone positioned their portfolio to match their regime forecast, and their regime forecast was right.
The hedge funds that missed the gold rally didn't fail because they missed a trade. They failed because they optimized for narrative coherence instead of regime capture. They said one thing and positioned another.
The managers who captured the gold rally did the opposite: they said what they believed, positioned accordingly, and accepted the volatility that came with it.
For emerging managers, the lesson is stark: allocators can sense when your positioning doesn't match your narrative. They can see when you're hedging against your own forecast. And they'll always prefer to fund the manager who's willing to position with conviction, even if that conviction is sometimes wrong, over the manager who tells a coherent story but positions with ambivalence.
If you forecast a regime, your portfolio should reflect it. If it doesn't, you're not forecasting. You're narrating.
And narratives don't generate 180%+ returns.
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