The central bank accelerates gold accumulation, ETF funds flow back, and the value of hedging rises... Gold is 迎来 a favorable situation!

Gold bulls make a comeback? Deutsche Bank's astonishing prediction: aiming for $3,350 by the end of the year!

On April 7, Deutsche Bank pointed out in its latest special report that despite a pullback this week, the bullish fundamentals for gold remain strong. The bank maintains a bullish stance on gold, predicting that the price will reach $3,350 per ounce by the end of 2025.

Strong support from central bank gold purchases

Official purchases have become a key factor defining the "new normal" for gold.

According to Deutsche Bank data, since 2022, central bank buying has stabilized at 24% of the gold market, far exceeding the average level of 7-10% in net issuance of U.S. Treasury bonds during 2010-2021.

Moreover, since the fourth quarter of 2022, central bank gold demand has been increasing at a rate of approximately $70 billion per year, significantly higher than the $23 billion per year during the period from 2012 to 2021.

The report points out that the significant increase in central bank gold purchases means that the role of official sectors in the gold price formation mechanism is becoming increasingly important, marking the entry of the gold market into a "new normal" dominated by official demand.

It is noteworthy that, according to data from the World Gold Council and Metals Focus, there is a huge and widening gap between the purchase volumes reported by central banks and the data reported by the International Monetary Fund (IMF). As of the fourth quarter of 2024, the cumulative gap has reached 3,495 tons, far exceeding the 2,680 tons from a year ago. In just the fourth quarter, the unreported purchase volume reached 262 tons, the third highest quarterly figure since 2022, which suggests that the actual scale of central bank gold purchases may far exceed public data.

The World Gold Council's central bank gold reserve survey shows that since 2022, the proportion of central bank managers expecting to moderately increase the share of gold in total reserves over the next five years has risen from 46% to 66%, while the proportion expecting a moderate decrease in the dollar share has risen from 38% to 49%.

The report adds that the main motivations for reserve managers to increase gold holdings include: long-term value preservation/inflation hedging (88% mentioned), performance during crises (82% mentioned), and effective portfolio diversification (76% mentioned)

Geopolitical Factors Prompt Central Banks to Increase Gold Allocation

The current global geopolitical landscape is profoundly affecting the strategic value of gold. As the world moves towards a multipolar structure, emerging powers represented by the BRICS countries, the "Global South," and the Regional Comprehensive Economic Partnership (RCEP) are rising.

Deutsche Bank points out that the current U.S. government has adopted a more transactional strategy in defense cooperation, foreign trade, and aid, creating opportunities and uncertainties for reshaping the geopolitical map.

In this context, some countries, especially those whose geopolitical positions do not fully align with the U.S., may increase their gold holdings to hedge against risks.

Private Investors Rush In, ETFs and Institutions Join Forces

In addition to central banks, the demand for gold from the private sector is also significantly rebounding.

The report indicates that gold ETFs in developed markets recorded a year-on-year increase in February 2025 after experiencing net outflows for two and a half years. Subsequently, the increase in ETFs largely offset the reduction in speculative gold positions, with SPDR Gold Trust, SPDR Gold MiniShares, and iShares being the main contributors to the recent increase.

Although the scale of China's gold ETFs is relatively small, their growth momentum is rapid. In 2024, the increase in China's gold ETFs reached 1.47 million troy ounces, more than four times that of 2023 (340,000 troy ounces), setting a record for the highest annual increase since records began in 2015.

The report also notes that based on the compound annual growth rate of China Ping An and China Life from 2019 to 2024, the investable assets of these 10 insurance companies could reach $27.5 billion by the end of 2024, equivalent to 8.9 million troy ounces.

With the official launch of the policy pilot for Chinese insurance funds to invest in gold, the report speculates that if the demand from Chinese insurance funds overlaps with central bank purchases, these two sectors could account for up to 30% of the gold market in the short term.

The report specifically adds that history shows that the non-monetary gold import demand in Asia (including jewelry demand) typically adapts to higher real gold prices over time. Although monthly import volumes may experience significant fluctuations, the market is expected to recover in the long term. Analysts predict that gold prices exceeding $3,000 per ounce will not continuously harm the demand for jewelry, gold bars, and coins in Asia.

Gold Prices Entering a "New Normal"? Pricing Models Face Reevaluation

Traditionally, gold pricing models based on factors such as the US dollar, real interest rates, and risk sentiment seem to struggle to fully explain the strong performance of gold prices in recent years.

Deutsche Bank believes that gold prices continue to exhibit a "positive wedge" relative to the model's fair value, indicating that gold may have entered a "new normal" or "new mechanism" driven by structural factors (especially central bank purchases).

To quantify this new normal and support its predictions, Deutsche Bank employed three methods:

1. Based on historical premiums: Reviewing the period of high official demand from 2022 to 2024, gold prices averaged 15% above model expectations. If this trend continues, it suggests that gold prices could increase by another 15% on top of the current financially driven fair value.

2. Referencing ETF sensitivity: Estimating the impact of excess demand (such as central bank excess purchases here) on gold prices based on historical data from models like the World Gold Council's Quorum model.

3. Adjusting the pricing model: Incorporating the excess purchase volume by central banks (current purchase volume minus the average level from 2011 to 2021) as a new input variable into the model. The adjusted model, while better fitting the trends of 2023-2024, also shows a change in sensitivity to the US dollar and equity risk premiums, significantly increasing the model's sensitivity to central bank purchasing behavior. The model estimates that for every additional 100 tons of excess central bank demand (above the 2011-21 average), year-on-year gold price performance will improve by 2.2%.

Based on these methods, Deutsche Bank predicts that by the end of 2025, gold prices will reach $3,350 per ounce; if central bank demand remains high before the end of 2025 but then returns to the 2011-21 norm, the average gold price in 2026 could be $3,500 per ounce; if high demand continues until the end of 2026, the average price in 2026 could reach $3,900 per ounce.

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