Is the momentum of gold's rise continuing? Deutsche Bank: In addition to central banks, the "gold rush" and ETF demand are making a strong comeback
Deutsche Bank pointed out that gold prices have risen due to strong ETF demand and central bank purchases, reaching $3,800 per ounce on Monday. The return of ETF demand has a 50% greater impact on gold prices compared to the period from 2021 to 2024. Analyst Michael Hsueh stated that central banks and ETF investors are the main buyers of gold, and it is expected that the Federal Reserve's easing policy will drive ETF holdings up by 2026. Although jewelry demand is volatile, the demand for coins and bullion has a smaller impact on prices, while recycled gold supply is sensitive. Increased ETF holdings are crucial for the rise in gold prices, and a halt in capital inflows could pose downside risks
According to the Zhitong Finance APP, gold has been performing strongly over the past few months, with prices hitting new highs. According to Deutsche Bank's research department, due to strong demand from exchange-traded funds (ETFs) and global central banks, its price reached a high of $3,800 per ounce on Monday. ETFs have made a strong comeback, ranking among the top three in gold reserves this year. Compared to the period from 2021 to 2024, the current impact of ETFs on gold prices has increased by 50%.
Deutsche Bank analyst Michael Hsueh stated, "The strong return of ETF demand to the market indicates the presence of two types of 'active buyer' behavior towards gold, one from central banks and the other from ETF investors. This helps explain why gold has consistently outperformed expectations. In our view, the Federal Reserve's easing tendency should make it more likely for ETF holdings to rise rather than fall by 2026."
Since 2021, major central banks have been increasing their gold holdings by about 400 to 500 tons each year.
The role of other sources of demand has weakened relatively. Jewelry purchasing demand remains highly elastic, with demand decreasing when prices rise. Demand for coins and bullion is generally insensitive to price but has a smaller impact; meanwhile, recycled gold supply is sensitive to price, making it a factor influencing price fluctuations.
Hsueh explained, "This explains why we do not view the decline in jewelry demand as a negative factor for gold prices. On the contrary, if jewelry demand increases, it is likely to have a negative impact on gold prices, as it may require lower gold prices as an incentive."
Finally, if the increase in ETFs has indeed played an important role in driving up gold prices, it can also be inferred that if this influx of funds stops or reverses, it would pose a downside risk. Hsueh added that typically, when U.S. Treasury yields decline, investors tend to increase their gold holdings in ETFs
