Deutsche Bank: Governments Are Printing Money To Buy Gold

Key Concepts

• Sovereign Gold Buying: Governments purchasing gold based on predetermined ounce targets rather than price.
• Inelastic Demand: Demand that does not significantly change in response to price fluctuations.
• Structural Shift: A fundamental change in the underlying dynamics of a market or system.
• Regional Reserve Currencies: Currencies that gain prominence within specific geographic regions, potentially challenging the dominance of existing global reserve currencies.
• Liquidity Tightening: A reduction in the availability of money and credit in the financial system.
• Remonetization of Gold: The process by which gold is increasingly being treated as a monetary asset again, particularly in Eastern economies.

Deutsche Bank's Analysis: Sovereign Gold Accumulation

Deutsche Bank has identified a significant structural shift in global monetary behavior, asserting that sovereign entities are no longer purchasing gold based on its price. Instead, they are acquiring it with predetermined ounce targets. This implies that governments are effectively printing the necessary currency to secure gold, thereby creating persistent, inelastic demand. This inelastic demand is seen as lifting the floor under the price of gold. Deutsche Bank's analysis suggests that reserve managers will continue to accumulate gold even during price dips, with jewelry and ETF flows playing a secondary role, despite the ETF flows themselves exhibiting some inelasticity. The report concludes that if this trend persists, gold's upward trajectory is far from over.

This observation is further supported by an analysis of India's gold demand since 2022, which has shown a consistent annual acquisition of ounces regardless of price fluctuations, indicating a focus on quantity rather than monetary expenditure.

Market Overview and Other News

The morning markets report, as of Monday morning of Thanksgiving week, indicated the following movements:

• Treasury Yields: 10-year yields were down nearly 2%.
• US Dollar: Down 13 points.
• Equity Markets: S&P 500 up 21 points, Nasdaq up 10-11 points.
• VIX: Softer by approximately 50 basis points.
• Precious Metals: Gold up $7, Silver up 12-13 cents. Gold was trading at $40.71, and Silver at $5.01.
• Commodities: Copper unchanged at $4.97, WTI crude oil up slightly at $58.11, Natural Gas down 6 cents.
• Cryptocurrencies: Bitcoin had a strong weekend but was down $600, trading at $86,000. Ethereum was up about 7 points at $2,800.
• Other Metals: Palladium up $9, Platinum up $21, trading at $1386 and $1534 respectively.
• Grains: All weaker, with wheat leading the decline.

Other Notable News Items:

• COMEX Gold Open Interest Revisions: Surge in massive, unexplained revisions to COMEX gold open interest is raising concerns about hidden losses, market stress, and the integrity of the gold benchmark.
• Robert Kiyosaki Sells Bitcoin: The "Rich Dad Poor Dad" author, Robert Kiyosaki, reportedly sold over $2 million worth of Bitcoin, shifting the funds into cash flow-generating businesses, despite prior assurances of not selling.
• Europe and India Bypass US Dollar: Europe and India have agreed to link their instant settlement systems, bypassing the US dollar for cross-border payments. This is seen as a significant step towards regional reserve currencies and an alternative to SWIFT.
• UBS Gold Forecast: UBS has raised its gold forecast to $4,500-$4,900 for 2026-2027, labeling gold as the strongest global asset and a critical hedge against mounting geopolitical and fiscal risks.
• Bitcoin as a Fed Policy Indicator: Michael Hartnett of Bank of America suggests that Bitcoin's price movements serve as an indicator for 2026 Federal Reserve policy, with its slide signaling tightening liquidity and an impending Fed rate cut. This aligns with observations by Michael Howell of Capital Wars regarding liquidity cycles and Bitcoin's correlation.
• Market Dynamics ("More Buyers Than Sellers"): A veteran CIO explains that the adage "more buyers than sellers" is not sarcasm but a reflection of how markets often move before the underlying reasons become apparent, with traders often acting as "mushrooms" kept in the dark.
• Italy's Gold Tax: Italy is introducing a voluntary amnesty to tax and track private gold holdings, potentially transforming family wealth into a state-monitored asset.
• China's Tilt Towards Hard Assets: China's major stock index is being reshaped by the inclusion of gold and metals producers, signaling Beijing's increasing emphasis on hard asset power.
• Russia's Gold Operations: Russia is expanding its gold operations as domestic liquidity rises, which is not considered bearish for gold.

Gold and Silver Chart Analysis

Gold: Trading Range and Floor Raising

Gold is currently observed to be within a wedge pattern. Historically, such patterns often led to downward breakouts, but there's a possibility of an upward breakout now. The 30-day and 50-day moving averages are noted, with the 40-day moving average appearing to govern the price action.

The analysis identifies a trading range for gold, similar to one observed in April. The key support level is identified at $3914, and the resistance level at $4168. The market is expected to trade within this range. A previous resistance line, which was not expected to hold, has surprisingly maintained its significance. The fact that the market did not retest lower levels after overextending to the upside is considered encouraging, suggesting a potential raising of the floor. The current range is estimated to be from $3916 to $4159, with the market pausing in an area that suggests the buyer from lower levels may now be buying at higher levels. This buyer could be a bullion bank, a new entity, or Chinese order flow. If the price falls below the current support, buying is anticipated in the subsequent area, potentially front-running bond activity. The current market is described as dynamic, and while bullish sentiment is warranted due to "buy season," caution is advised after a significant bullish sell-off.

Silver: Stronger Performance and China's Influence

Silver is noted to be trading above significant lines, suggesting a stronger performance than gold. The analysis suggests a potential trading range for silver as well. China's role in pulling silver from the market, LBMA leasing of silver, and spiking silver imports in Turkey are highlighted as factors contributing to silver's strength.

The speaker posits that China is strategically leveraging gold and silver because the US and G7 do not consider them money or global currencies in the FX market. This allows countries like China, Turkey, and India to acquire these assets without facing accusations of currency manipulation, as they are global commodities, not government-controlled fiat. The historical weakness of gold due to its commodity status is now ironically becoming a strength as it is being remonetized in the East. While the West still struggles to view gold beyond its commodity classification, this perception is seen as undermining the West's ownership of the metal.

Conclusion

The primary takeaway from the video is the significant structural shift in sovereign gold acquisition, moving from price-based to ounce-target-driven purchases. This creates inelastic demand, supporting higher gold prices. The market is currently in a dynamic phase with gold trading within a defined range, and silver showing relative strength, partly driven by Eastern demand and the inability of Western powers to manipulate these global commodities. The remonetization of gold in the East and the potential for silver to follow suit are key themes, suggesting a redefinition of the global monetary system.