Deutsche Bank believes that historical data indicates that the geopolitical risk premium for Gold typically peaks on the 8th to 20th trading day after a crisis, with an average increase of 5.5%. Considering the severity of the current conflict and the actual mobilization of U.S. military forces, a rapid decline in the geopolitical risk premium for Gold may be a false signal, necessitating preparation for the potential rebuilding of risk premium in Gold over the coming weeks.
The geopolitical conflict between Israel and Palestine continues to escalate, and the United States frequently sends signals of military intervention, causing the geopolitical risk premium for Gold to dissipate unusually quickly. Deutsche Bank stated that this abnormal performance may be a false signal.
On June 21, according to reports from the trading platform Chasewind, Deutsche Bank's latest Research Reports indicated that the rapid decline in Gold's geopolitical risk premium since last week appears unusual compared to its historical responses to similar geopolitical events.
As the conflict between Israel and Palestine escalates, $XAU/USD (XAUUSD.CFD)$it has continuously fallen this week, closing below $3,370, accumulating a drop of over 1.8%, marking the first decline in three weeks. Last week, right after the outbreak of the conflict, spot Gold surged significantly, peaking close to $3,450.
However, Deutsche Bank stated that Historical Data indicates that the event risk premium for Gold usually peaks between the 8th and 20th trading days after a crisis occurs, with an average increase of 5.5% (spot price) and 6.3% (model residual). The bank believes that:
given the severity of the Israel-Palestine conflict and the actual mobilization of U.S. troops, preparations should be made for Gold to rebuild its risk premium in the coming weeks.
The risk premium of Gold is rapidly decreasing.
Deutsche Bank stated that the rapid decrease of the Gold risk premium contrasts with the increasingly public hints from the U.S. President since leaving the G7 summit in Alberta, Canada, suggesting that U.S. troops might undertake active actions in conjunction with Israel.
According to an article from Wall Street Insight citing reports from CCTV and Xinhua, U.S. President Trump stated on the 20th that two weeks is the "longest" period he is giving Iran to avoid U.S. military strikes. U.S. media reported that this statement implies that Trump may decide whether to carry out airstrikes on Iran in less than two weeks.
On June 19 local time, the White House stated regarding Iran that President Trump would decide within two weeks whether to attack Iran. Some media reported that Trump believes it is necessary to incapacitate the Fordow facility, but has not yet made a final decision.
At a time when the U.S. is openly signaling military intervention, tensions in the Israel-Iran conflict continue, yet Gold remains "indifferent." In this regard, Deutsche Bank's report pointed out:
Some viewpoints attempt to rationalize Gold's poor performance, suggesting that the more publicly available signals are likely to be viewed as leverage in negotiations, and given that Iran's air defense capabilities are reported to have diminished, there is no urgency for the U.S. to take action now.
However, this overlooks a fact: Israel's intentions to strike last week had also been underestimated (including by Iranian authorities), and reports indicate that the U.S. military has already undertaken some very practical redeployments, including the deployment of B-2 bombers to Diego Garcia in April and the movement of the Nimitz carrier strike group over the past week.
Historical Data reveals the response patterns of Gold.
Although Gold's response in the current 'crisis' is disappointing, the historical context provides important references for framing current events. This context indicates that unless the current conflict is resolved through diplomatic means, Gold is likely to rebuild some risk premium before the conflict resolution.
The report states that historical analysis shows that in 28 crisis events, the average spot price of Gold rose by 3%, but the variations in individual events differed greatly. Historically, significant events such as Hamas attacking Israel, the Russia-Ukraine conflict, and the WHO declaring COVID-19 a pandemic have all driven Gold prices to rise significantly.
Deutsche Bank drew several important observations from the Historical Data:
1. The time lag effect is significant: the event risk premium for Gold may not respond immediately but gradually accumulate to a peak during the 8th to 20th trading days after the event occurs.
2. The magnitude of the peak varies greatly: according to a simple average of the event list, model residuals rise by 2.5%, and the spot price rises by 3%. However, this masks the time differences of the peaks.
Note: Residual refers to the difference between actual observed values and estimated values (fitted values). The 'residual' contains important information about the basic assumptions of the model and can be seen as an observation of error.
3. The importance of the current conflict is prominent: subjectively, the event of open hostilities between Israel and Iran is more significant than some other events on the historical list. If one agrees with this judgment, then Gold's response should at least reach the simple average level, which is a rise of 3%.
4. The real impact, considering time differences: due to the varying peak times, the maximum single response averages of 5.5% for spot prices and 6.3% for model residuals may be more important than the peaks of 3% and 2.5% observed in longitudinal plots.
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