Deutsche Bank Forecasts Gold Entering 'Blow-Off Phase,' Reaffirms Year-End Target of $4,600

Deutsche Bank strategist Michael Hsueh has stated that gold has officially entered a 'blow-off phase' since August 2024, and this strong bullish trend shows no signs of ending. He reiterated the bank's forecast for gold prices to reach $4,600 per ounce by year-end.

Gold futures traded at $4,117.80 per ounce on Monday (3rd), down 5% year-to-date but up 20% compared to 52 weeks ago.

According to Hsueh, a 'blow-off' refers to a situation where asset prices deviate significantly from historical norms, exhibiting exponential surges. Given that gold prices have more than doubled over the past two years, defining this rally as a 'price blow-off' is reasonable. In fact, the Bank for International Settlements (BIS) had already warned in August 2024 of 'signs of a bubble' emerging in the gold market.

In his latest gold-focused research report, Hsueh analyzes the current 'explosive price behavior phase' from three perspectives.

First, he compares gold with other major commodities—including copper, crude oil, and even bread—adjusting for inflation to assess long-term growth rates. The real annual growth rates of these commodities range from 0.26% for bread to 3.44% for crude oil. Applying these long-term average growth rates to estimate gold's fair value results in a price of approximately $2,600 per ounce.

Second, Hsueh employs the 'Backward Supremum Augmented Dickey-Fuller test,' an econometric tool used to identify and time speculative price bubbles. According to this model, gold prices could peak at $6,400 per ounce, with a downside potential around $3,700.

Third, Hsueh's proprietary valuation model suggests a year-end fair value of $4,700 per ounce for gold. This model incorporates parameters such as the S&P 500 index, 10-year U.S. Treasury yield, and exchange rates. Notably, due to slowing central bank gold purchases, the model has slightly revised downward the theoretical fair value. However, since this estimate remains close to the previously stated $4,600 target, Hsueh maintains his original outlook.

Hsueh emphasizes a key fundamental observation: over the long term from 1957 to 2023, gold has outperformed the U.S. Consumer Price Index (CPI). During this period, gold delivered an average real return of approximately 2.5% annually. Including the strong rally since 2024, the actual return becomes even more impressive.