Refusing to pull back, far exceeding model valuations, Deutsche Bank exclaims: Gold is truly astonishingly strong!

Gold outperforms financial fair value, Deutsche Bank bullish on gold.

On Tuesday, October 15th, Deutsche Bank research analyst Michael Hsueh released a report stating that at certain times this year, gold has risen without the support of financial fair value. Currently, the Federal Reserve still has room for further easing, further enhancing the upward trend of gold. Gold prices are expected to continue to outperform the financial fair value of gold by the end of this year, with the largest margin since 1998. In addition, the relative change rate between gold prices and the US dollar this year is the highest in the past twenty-five years.

Financial fair value is the value that assets should have based on market conditions and economic indicators (such as interest rates, inflation, economic growth, etc.).

Deutsche Bank stated that at certain times, the fluctuation of gold prices shows reasonable ups and downs, while at other times, gold rises without the support of financial fair value, and this year these two situations have alternated. As shown in the chart below, last week, for example, geopolitical risks intensified, which was a reasonable factor for the decline in gold prices, but soon gold broke free from this correlation, unlike oil. Deutsche Bank believes this is because gold is a hedge against geopolitical risks, while oil is closely related to supply risks.

From a monthly perspective, the most significant months for gold price increases this year were March and April, but Deutsche Bank believes that the rise since August is more reasonable, as the rate cut by the Federal Reserve is favorable for gold prices. Unexpectedly weak US non-farm payroll data in July, coupled with strong core CPI data from May to July, prompted the Federal Reserve to start a loose cycle, with a significant 50 basis point rate cut in September.

However, as mentioned earlier, at certain times this year, gold prices have risen when financial fair value has fallen. Deutsche Bank stated that gold has outperformed financial fair value this year, partly due to the hawkish policies of the Federal Reserve in the first half of the year, a strong US dollar, and the weakness of the US stock market in the second half of the year. The periodic eruption of geopolitical risks has evidently also been favorable for gold, but when risks subside, the price of gold does not fall equally.

Deutsche Bank stated that gold prices are expected to continue to outperform the financial fair value of gold by the end of this year, with the largest margin since 1998.

Furthermore, Deutsche Bank also pointed out that the relative change rate between gold prices and the US dollar this year is the highest in the past twenty-five years, regardless of the changes in the trade-weighted US dollar, according to year-end data calculations.

In the future, Deutsche Bank believes that investors should closely monitor the US presidential election, as it will affect the price of gold through its impact on the US dollar exchange rate, US inflation, etc. In addition, potential tax increases, long-term fiscal consolidation, and the uncertainty of the election itself also have an impact on the price of gold