Has gold "surrendered"?

Deutsche Bank warns that gold is at its most pessimistic level in years, but prices have failed to make new lows, and reversal signals are building .

According to a report from the TrendFocus Trading Platform, Deutsche Bank stated in its latest commodity research report released on September 30th that the gold market currently exhibits a triple characteristic of being "ignored, oversold, and underweight," with the extreme pessimism in the open interest approaching a point of absolute "surrender." The report points out that Commodity Trading Advisors (CTAs) have sold 52% of their largest positions in the past month, marking the 3rd percentile of monthly outflows in history, yet gold prices have consistently failed to reach new lows— this divergence signal indicates the presence of strong hedging buying power in the market.

In a report, Daniel Ghali, head of metals research at Deutsche Bank, explicitly called for a "Buy in Sorrento," arguing that the current moment is when the warning signs are loudest . He warned that if gold prices decline again in the coming week, CTAs may push their positions to the "effective maximum short" level —at which point all trend signals will point to a downside, constituting an absolute capitulation moment for the gold market. Further selling would require discretionary traders and macro funds to establish large-scale net short positions against the backdrop of continued central bank buying, a scenario with extremely low probability.

Extremely pessimistic portfolio: lowest allocation level in many years

Deutsche Bank research shows that current gold holdings have reached their most bearish level in years, with multiple indicators issuing warnings simultaneously.

CME gold aggregate open interest is currently only around 400,000 contracts , a figure that is already extremely low. It's particularly noteworthy that this occurs against the backdrop of gold's increasing weighting in broad-based commodity indices and Deutsche Bank's calculations of the leverage ratio for the risk parity and volatility target combination having reached a reasonable upper limit. The continued rise in contributions from these two "sticky" sources of open interest, in stark contrast to the extremely low total open interest, makes the warning significance of this indicator even more prominent.

At the CTA level, Deutsche Bank estimates that CTAs currently hold the largest net short position since October 2021. In the past month alone, CTAs have sold 52% of their largest positions, a monthly outflow that ranks in the 3rd percentile historically and represents an extremely rare large-scale sell-off.

The situation for discretionary traders is equally concerning. Deutsche Bank's discretionary trader futures positioning indicator, built based on money manager positions data from the CFTC Commitment of Traders (COT) report excluding CTA factors, shows that related long positions have been liquidated by 55% from their peak levels accumulated in June. Meanwhile, spot fund flow tracking data also indicates that discretionary traders have largely remained on the sidelines for the past few months.

Prices did not hit new lows: Mystery buyers propped up the market.

Despite the unprecedented scale of CTA selling, gold prices have failed to reach new lows. Deutsche Bank believes this divergence points to increasing hedging buying in the market.

Deutsche Bank believes that demand from central bank reserve management institutions is rising , driven by factors including: continued escalating geopolitical uncertainty, the US Treasury's "Treasury Twist operations," and the impact of news related to Japan's Foreign Exchange and International Reserve Account (FIMA). These factors collectively reinforce the logic behind reserve management institutions increasing their gold holdings.

At the same time, for institutional investors, there is a growing rationale to diversify their alternative asset portfolios by increasing gold holdings, given the valuation pressures faced by yield-sensitive alternative assets.

However, macro investors and discretionary market participants are generally remaining on the sidelines. Deutsche Bank points out that the current market situation is increasingly similar to that of 2022—when institutional buying quietly absorbed large-scale selling by CTAs, ultimately forming the basis for a market reversal.

The moment of absolute surrender is approaching: the liquidity vacuum exacerbates the risk.

In addition, Deutsche Bank warned that the market is approaching a key technical juncture. If gold prices decline further in the coming week, CTAs may push their positions to the "effective maximum short" level —an extreme position where all trend signals within Deutsche Bank's monitoring scope point to a downward trend.

This risk scenario is made more realistic by the impending liquidity vacuum: the Chinese Golden Week holiday coincides with the London Bullion Market Association (LBMA) annual meeting, which will significantly reduce market participation and amplify price volatility.

Deutsche Bank believes that if the above scenario materializes, it will mark the moment of absolute surrender in the gold market. Further downward pressure on gold prices would require discretionary traders and macro funds to establish large-scale net short positions amid continued buying by central bank reserve management institutions – a logically highly improbable scenario.

Based on the above analytical framework, Daniel Ghali issued a clear buy signal in his report, believing that the current moment is when the alarm bells are ringing loudest, and used "buy in Sorrento" as the footnote to his core trading advice.

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The above content is from Zhuifeng Trading Platform .

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