Key Takeaways:
Spot gold is testing $4,500 an ounce after Deutsche Bank and Societe Generale turned constructive on the metal, citing a return of institutional buying.
"The cavalry has arrived," Daniel Ghali, head of metals research at Deutsche Bank, wrote in the bank's Sept. 3 dbMetals report, saying discretionary hedge funds, asset managers and banks are now buying spot gold as commercial and retail selling exhausts.
Central bank net purchases reached a record 289 tons in the second quarter, World Gold Council data shows, with China adding 20 tons and Poland 8 tons in July. Amundi, Pictet, Robeco and Fidelity International all added gold during the pullback, according to Bloomberg.
Gold faces a binary technical setup: a break below $4,300 an ounce could trigger CTA program selling, while a move above $4,700 may draw futures buying equal to 13 percent of algorithmic maximum positions. The next U.S. payrolls report will set the near-term direction.
Record 289 Tons of Central Bank Buying Sets a Higher Floor
Societe Generale, which cut gold exposure in the first half, said the time to re-enter has arrived. Analysts at the French bank argue the metal's slide under the twin pressure of the US-Iran conflict and expectations of another Federal Reserve rate increase has largely been absorbed, with volatility normalizing and speculative net longs back above their two-year average.
"Since 2022, there has been a clear regime shift," the SocGen analysts wrote, noting gold is holding near historic highs despite positive real yields, a departure from traditional model-implied prices. Sustained central bank buying, de-dollarization, geopolitical uncertainty and sovereign debt concerns are providing a higher price floor, they said.
The structural bid is visible in the data. Central banks bought a record 289 tons net in the second quarter and added 23 tons in July, World Gold Council data shows. China's central bank extended its buying streak to 21 months, lifting gold to 8 percent of reserves, while Poland added 90 tons year-to-date to reach 640 tons, or 28 percent of reserves, on track for a 700-ton target. The Bank of Korea announced its first official gold allocation in 13 years.
$4,300 and $4,700 Mark the Algorithmic Battle Lines
Deutsche Bank quantified the algorithmic thresholds in its report. A drop below $4,300 an ounce could trigger the next round of CTA program selling, with pressure building if a strong payrolls print follows. A rally above $4,700, by contrast, could draw futures buying equal to 13 percent of the algorithms' maximum position.
The bank cautioned that institutional positioning remains low across spot, futures and ETF channels even after buying resumed. A metric tracking discretionary participation has fallen 60 percent from its August high, Deutsche Bank said, suggesting the accumulation phase may be just beginning.
Amundi, Europe's largest asset manager, bought gold during the pullback and expects the metal to return to $5,000 an ounce this year, according to Lorenzo Portelli, head of cross-asset strategy at Amundi Investment Institute. Robeco portfolio manager Arnout van Rijn cited accelerating central bank buying as the trigger to re-enter, while BNP Paribas Asset Management's Sophie Huynh said gold's falling correlation with risk assets shows its hedge function is returning after a speculative run. Bridgewater Associates founder Ray Dalio has urged investors to cut bond holdings and allocate as much as 15 percent of assets to gold to hedge U.S. debt risk.
The macro backdrop remains a headwind. Two-year Treasury yields are back above 4 percent, supporting the dollar, after Fed Chair Warsh's Jackson Hole speech reinforced expectations of a possible additional rate increase this year. SocGen's base case is rates on hold until 2027, but the bank acknowledges another hike is possible if inflation persists.
This article is for informational purposes only and does not constitute investment advice.
