Deutsche Bank strategist Michael Hsueh says gold is still moving through an explosive phase of price behavior that began in August 2024 and has reiterated the bank's $4,600 year-end target. Gold traded at $4,117.80 Monday, up 20% over the past year, and Hsueh's three-part analysis still points to fair value near $4,700 by year-end.
Gold remains in an explosive phase of price behavior that began in August 2024, according to Deutsche Bank strategist Michael Hsueh, who reiterated the bank's year-end forecast of $4,600 an ounce in a note to clients Monday.
The metal traded at $4,117.80 Monday, down 5% on the year but up 20% from 52 weeks ago. Hsueh's report examined the current phase from three separate angles to test whether gold should keep falling.
Three tests point in different directions
First, Hsueh compared gold's long-term inflation-adjusted growth rate against other commodities, including copper, oil and bread, whose long-run rates range from 0.26% to 3.44% a year. Applied to gold, those averages imply a price of just $2,600 an ounce.
Next, he ran an econometric model called the Backward Supremum Augmented Dickey-Fuller test, used to time-stamp speculative bubbles. That model puts gold's peak at $6,400 and its floor at $3,700. But Deutsche Bank's own regression suggests the metal may already have bottomed closer to $3,900. That view rests on the underlying statistic easing from a peak of 3.3 to 1.3 while staying above its 95% critical value.
Fair-value model still points higher
Third, Hsueh's fair-value model points to $4,700 an ounce by year-end, built on inputs including the S&P 500, the 10-year Treasury yield and exchange rates. Deutsche Bank lowered that estimate after accounting for slowing central bank gold purchases, but because the new figure sits close to its existing $4,600 forecast, the bank is sticking with the target for now.
The bank's analysis builds on a Bank for International Settlements description of bubble conditions in gold dating to August 2024. Hsueh notes the current episode is one of five such phases in data going back to 1975.
From 1957 through 2023, gold outperformed the U.S. consumer price index with an average real return of 2.5% a year — a figure Hsueh says would run higher once gold's rally since 2024 is factored in.
Sources: MarketWatch.com – Top Stories, Commodities & Futures News
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