This is why gold rally may have peaked in trendiness – Deutsche Bank

[Stack of gold bars]
brightstars/E+ via Getty Images

The gold (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) rally of September-October may have peaked in trendiness, according to Deutsche Bank Research.

The current trendiness episode – lasting about a month now, as gold (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) hits $4,100 – is longer than both the median (18 days) and average (19 days) duration observed over the past three years, Deutsche Bank analysts said. The longest period was March-May 2024 at 49 trading days.

Two major contrasts exist between the current rally and the January-May surge, Michael Hsueh, research analyst at Deutsche Bank, pointed out.

The first is a more beneficial contrast between trendiness and low volatility than in the first half of the year, with the trendiness score peaking at double the H1 highs. “This means that trend-following strategies are likely to have benefited from this rally, especially compared to April-May, when realized volatility was above average,” Hsueh said.

The second difference involves stronger participation from white metals in the current rally, particularly palladium (XPDUSD:CUR [https://seekingalpha.com/symbol/XPDUSD:CUR]), which has been a laggard this year compared to silver (XAGUSD:CUR [https://seekingalpha.com/symbol/XAGUSD:CUR]) and platinum (XPTUSD:CUR [https://seekingalpha.com/symbol/XPTUSD:CUR]).

Silver’s exceptional move to $51/oz is tied to physical market tightness, as evidenced by record lease rates reaching 20% for three-month silver on Oct. 3, Hsueh said. His analysis suggested that “the closer relationship between metals in the Sep-Oct rally being more typical of the long-term history.”

A peak in trendiness does not necessarily signal an impending correction, he added, citing the example of June-August this year when RSI (relative strength index) dropped back to neutral and month-on-month changes neared zero without triggering a significant correction.

“The updated gold model indicates that while gold (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) continues to outperform [the] model, there has been substantial support from fair value,” Hsueh noted, adding that models have risen by $260-290/oz since early August.

In the absence of Commodity Futures Trading Commission positioning data due to the U.S. government shutdown, ETF activity provides the only up-to-date flow guidance, showing investors reducing purchases in the last week but not selling.

Hsueh referenced Umicore’s (OTCPK:UMICF [https://seekingalpha.com/symbol/UMICF]) decision to sell and lease back its gold inventory, though not as an implied view on gold valuation. “Historically stable lease rates mean that their annual lease costs will be more than offset by reduced financing costs.”

Hsueh also believes the gold to WTI crude oil ratio has further upside potential, targeting a rise to the 72-73 zone from its current level of 65.

This target could be achieved either through WTI crude (CL1:COM [https://seekingalpha.com/symbol/CL1:COM]) moving to the analyst’s 2026 target of $55/bbl or gold (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) moving to $4,450/oz, he said.

“We think the gold to WTI crude oil ratio has further to go,” he concluded in reference to their September “Blueprint trade.”

MORE ON GOLD SPOT PRICE:

* Is It Too Late To Hop On The Gold Train? [https://seekingalpha.com/article/4829597-is-it-too-late-to-hop-on-gold-train]
* Gold Demand Is Not Coming From The U.S. [https://seekingalpha.com/article/4829519-gold-demand-is-not-coming-from-the-us]
* Gold's Relentless Rally: Fundamentals And Renewed Investor Confidence [https://seekingalpha.com/article/4829444-gold-relentless-rally-fundamentals-renewed-investor-confidence]
* Silver soars to decades-high in historic short squeeze as gold hits record [https://seekingalpha.com/news/4503491-silver-soars-to-decades-high-in-historic-short-squeeze-as-gold-hits-record]
* Gold surges on de-dollarization, debasement, and diversification – analyst [https://seekingalpha.com/news/4503091-gold-surges-on-de-dollarization-debasement-and-diversification-analyst]