Gold selling pressure is about to dry up! Deutsche Bank: Even a hawkish Fed can't stop precious metals from strengthening; the next round of gains may be driven by active funds.

The gold market is at a critical turning point. A recent study by Deutsche Bank indicates that the systematic trading action (CTA) buying that has driven the current gold rally is nearing its end, while selling pressure is also almost exhausted. This combination suggests that even if the Federal Reserve releases hawkish signals, precious metal prices may surprisingly remain strong, and the next round of upward momentum may be passed to active discretionary traders.

In a report released on September 1, Deutsche Bank's Head of Metals Research, Daniel Ghali, pointed out that the gold spot market experienced a massive sell-off over the past month, with selling activity reaching the 86th percentile in nearly five years, primarily driven by commercial and retail groups. Simultaneously, CTA funds made significant purchases, with positions reaching a record high of 33%. However, the quantitative indicator measuring active discretionary fund participation—the "residual component" of CFTC asset management holdings that cannot be explained by CTA activity—remained virtually unchanged throughout the late summer rally and has fallen 60% from its August high.

Deutsche Bank predicts that "selling pressure exhaustion" is imminent. The report states that for CTAs to trigger the next round of selling, gold prices would need to fall below $4,315 per ounce. In a typical downtrend, algorithmic trading would not trigger a chain reaction of liquidations; conversely, if prices rise, CTAs might be forced to rebuild recently closed long positions.

Anomaly in buying structure: CTAs are the sole support, while active funds are absent.

A Deutsche Bank report reveals a significant imbalance in the funding structure behind this round of gold price increases. Despite the continued development of four major macroeconomic narratives—de-dollarization, asset diversification, currency devaluation, and fiscal dominance—there is no evidence of a large-scale influx of discretionary funds into the gold market throughout the late summer rally.

Specifically, the London Bullion Market Association (LBMA) reported sluggish spot trading volumes, further ruling out the possibility of a large-scale, untracked inflow of spot goods. Meanwhile, open interest in the options market rose, indicating that some funds are using options to position themselves for upside risk, but mainstream linear long positions remain largely absent.

Amidst the massive buying by CTAs, the microstructure of the gold market simultaneously emitted unusual signals. Deutsche Bank observed: interest rates failed to fall during the most active phase of algorithmic buying, suggesting limited absorption capacity of EFP (exchange-to-spot) arbitrage; the price increase of active CME contracts was significantly larger relative to the overall futures curve; and the correlation between flat price and CTA flow estimates was abnormally high. All three points point to the same conclusion: market balance sheets are under pressure, loan capacity is temporarily saturated, forcing the market to turn to other channels to absorb futures buying.

Selling pressure is waning: The market impact of hawkish statements is limited.

Deutsche Bank believes that the hawkish remarks by Federal Reserve official Warsh have a far weaker actual impact on gold prices than they appear.

The core logic is that EFP trading is usually the "first line of defense" for absorbing CTA buying, but the current balance sheet constraints have limited the normal operation of this mechanism. Against this backdrop, the market has already borne more of the pressure through parity fluctuations and the CME futures curve, which has amplified the marginal impact of CTA fund flows on gold prices. In other words, if the impact of CTA flows on prices is already greater than normal, then the amount of gold available for sale in the market is already quite limited.

Deutsche Bank has clearly quantified the trigger thresholds for algorithmic trading: CTAs need gold prices to fall below $4,315 per ounce to trigger the next round of systemic selling. Above this level, ordinary declines are insufficient to trigger a chain reaction of algorithmic liquidations; conversely, if prices rise, CTAs will be forced to re-establish previously closed long positions. This asymmetric structure means that the current market is significantly less sensitive to downside movements than to upside movements.

Discretionary funds may take over, with proactive buying poised to begin.

With CTA-led buying gradually receding and spot selling pressure drying up, Deutsche Bank expects active discretionary traders to become the next marginal buyers.

The report points out that with selling pressure exhausted, discretionary traders are expected to enter the market near current price levels. The four major macro themes—de-dollarization, asset diversification, currency devaluation, and fiscal dominance—while failing to translate into large-scale capital inflows in this round of market activity, have not lost their fundamental support. Once technical and funding headwinds ease, these narratives are expected to reignite active capital inflows.

Deutsche Bank's assessment thus forms a complete logical loop: CTA buying has peaked, spot selling has dried up, and active funds are eager to move – these three factors combined form the potential foundation for gold to withstand hawkish impacts and even buck the trend and strengthen before and after the Jackson Hole meeting.

Other metals: Silver shows strong bullish signals, while the copper market is nearing a turning point.

In other metals, Deutsche Bank's tactical judgment is also worth noting.

Regarding silver, Deutsche Bank pointed out that CTAs are extremely biased towards buying, and expects systematic trend followers to increase their positions by 8% of their maximum positions in the next trading day.

More importantly, in a typical downtrend, algorithmic selling pressure on silver is almost nonexistent; however, if the market strengthens, CTA holdings could reach 15% of their maximum positions within the next week. Silver spot market liquidity is the strongest among precious metals, with retail demand continuously absorbing non-commercial liquidation selling, creating a strong tactical bullish signal. However, Deutsche Bank also cautions that ample physical supply in the London silver market will limit the upside potential of the forward premium.

In the copper market, CTAs are already fully long, but Deutsche Bank believes the market's bullish sentiment towards copper is still insufficient. The first meaningful trigger for programmed selling is below $13,880/ton for three-month LME copper, a range that has held firm despite extremely tight supply. Deutsche Bank further points out that the copper market may be approaching a "turning point"—an extreme market condition that only occurs once every ten years, with the core question remaining unresolved: how much of the global above-ground inventory is actually available for purchase?

Regarding aluminum, Deutsche Bank expects CTAs to continue buying in almost any price scenario, with the current trading day projecting an increase of 7% of maximum positions. If prices rise to around $3335/ton for three-month aluminum on the LME, the increase could reach 16%. Palladium, on the other hand, is at the other extreme. The recent short covering by CTAs appears to have ended, and conditions are ripe for the market to re-establish a programmed short position.

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