Deutsche Bank Sees Gold Oversold Amid Structural Buying Strength

Deutsche Bank's head of metals research, Daniel Ghali, has identified gold as oversold and underpositioned following its recent correction. Despite headwinds from surging Treasury yields and high oil prices, gold has shown resilience, holding above its July lows. Ghali attributes this to a fundamentally different market structure compared to the 2021-2022 downturn, with the allocation environment expected to improve by 2027.

The current gold market positioning is among the most bearish since October 2021, with net short positions by trend-following funds near highs and long positions down 55% from June peaks. However, Deutsche Bank notes that demand remains strong, with official-sector gold purchases more than double the pace of 2021-2022. Institutional participation has also expanded by roughly 70%, indicating a divergence between speculative underweighting and official-sector accumulation.

Ghali argues that higher Treasury yields do not necessarily force institutional investors to choose between bonds and gold. Gold's lack of exposure to corporate earnings or credit risks makes it attractive for multi-asset diversification, especially as correlations among traditional asset classes rise. The Bank of Korea's recent gold purchases, aimed at reducing dollar dependence, highlight a broader trend of central bank gold accumulation.

Near-term variables influencing gold prices include the U.S. 10-year Treasury yield, oil prices, and Federal Reserve rate hike expectations. Despite a 26% decline from its January peak, Deutsche Bank maintains that structural buying by official-sector and long-term allocators remains entrenched, setting the stage for potential pent-up buying power when the rate environment turns.