Gold hit a new record. What Deutsche Bank says is driving the price of the metal

By Jules Rimmer

Deutsche Bank thinks official demand and ETF holdings are playing a pivotal role in gold strength, while jewellery demand and recycled supply are restraining factors. Bar and coin demand is playing a relatively weaker but still positive role in pushing gold prices higher.

As the price of gold chalks up yet another all-time high, there are two "aggressor bids" in the market right now that are responsible for the surge: central banks and exchange-traded funds, a leading bank says.

Gold futures (GC00) hit another record high on Monday, with the lead contract trading as high as $3,849.40. The contract has surged 46% this year.

A note from Deutsche Bank published Monday suggests ETFs are exerting a 50% stronger influence on gold pricing than they were in the last three years. This reinforces the bullish $4,000 target Deutsche Bank set on Sept. 17.

The same analyst, Michael Hsueh, investigates "Who drives gold prices?" in his report and points out that ETF investors are enjoying one of their top three years for gold accumulation since they were created. The popular SPDR Gold Shares GLD debuted on the New York Stock Exchange in 2004.

Even though Hsueh stresses that assets under management for ETFs are 70% above the 2020 level in dollar terms, this is no impediment to further price rises, especially because their holdings of 15 million troy ounces are below the 17 million they held then.

Hsueh applies what's called the Grainger causality test to the gold market and discovered that, counterintuitively, it's gold price changes that generate ETF flows rather than vice versa. The test also suggests that moves in interest rates, rather than the dollar DXY, are more important price vectors currently.

Gold ETF changes and gold price week on week

This last point chimes with the theories of The Brookings Institution's Robin Brooks who posted on X that "markets aren't trading dollar debasement. They are trading broad fiat currency debasement against gold" and a "sign of a global debt crisis."

Discussing the locomotives behind gold's ascent, Deutsche Bank's Hseuh asserts that "not all demand is created equal." Official demand, stemming from central banks, is price indifferent, they allege, because the additional 400 to 500 tons per year of additional demand in the last three years coincided with strong price appreciation.

Jewelry demand, however, is far more sensitive and diminishes with higher prices. Again, counter-intuitively, increased jewelry demand would be a negative price signal because it picks up as the price falls.

ETF investors are different. Their demand is relatively inelastic and this might explain why the gold price keeps outstripping the forecasting models of analysts who find this difficult to quantify. Bar and coin demand, Hsueh adds, are also quite price insensitive.

Further evidence of this relentless ETF demand was provided last Friday by Michael Hartnett's weekly flow show report that highlighted the previous four weeks had witnessed a record influx of $17.6 billion into gold funds.

Hartnett explains the rise in precious metals as driven by inflationary policies, a return of a "bull market in war." He justified staying long gold even though its "tactically overbought" because it remains "structurally under-owned" at just 0.4% of Bank of America's private client wealth and 2.4% of institutional assets under management.

-Jules Rimmer

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09-29-25 0710ET