Gold outperforms the fair value of financial institutions, and Deutsche Bank is bullish on gold.

On Tuesday, October 15th, Deutsche Bank research analyst Michael Hsueh released a report stating that at times this year, gold has risen without the support of financial fair value. Currently, the Fed still has further room for easing, further strengthening 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 increase since 1998. In addition, the relative rate of change between gold prices and the 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 states that at times, gold price fluctuations show reasonable ups and downs, while at other times, gold rises without the support of financial fair value. This year, these two situations have alternated. As shown in the chart below, taking last week as an example, geopolitical risks exacerbated, 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 the rise in gold this year were March and April, but Deutsche Bank believes that the rise since August is more reasonable, as the Fed's rate cut is bullish for gold prices. In July, the United Statesnon-farm payroll dataUnexpectedly weak, combined with the good performance of USA's core CPI data from May to July, prompting the Federal Reserve to start an easing cycle and drastically cut interest rates by 50 basis points in September.

However, as mentioned earlier, at certain times this year, the price of gold rose when financial fair value decreased. Deutsche Bank stated that gold performed better than financial fair value this year, partly due to the hawkish policies of the Federal Reserve in the first half of the year and the strength of the US dollar, as well as the weakness of the US stock market in the second half of the year. The periodic outbreaks of geopolitical risks also clearly favored gold, but when risks subsided, the price of gold did not drop as much.

Deutsche Bank stated that the price of gold is expected to continue to outperform the financial fair value of gold at the end of this year, with the magnitude being the largest since 1998.

In addition, 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 any changes in the trade-weighted US dollar, according to year-end data.

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

Editor/ping