Will gold shine again? Societe Generale restarts bullish trend, Deutsche Bank says "the cavalry has arrived," and leading asset managers are accelerating their position building.

The winds of change are quietly shifting in the gold market. After months of adjustment, top global investment banks and asset management institutions are returning to the gold market with rare unanimity: Societe Generale is bullish again, Deutsche Bank has confirmed a turning point in institutional funding, and several asset management giants are also increasing their gold holdings.

In its latest market report, Societe Generale expressed renewed optimism about gold, viewing it as an important tool for hedging against currency and policy uncertainties. Deutsche Bank, in its report released on September 3, began with "The Cavalry Has Arrived," pointing out that discretionary hedge funds, asset management institutions, and banks are taking turns buying spot gold, becoming the new main force in the market.

Meanwhile, according to Bloomberg, several leading institutions, including Amundi, Pictet, Robeco, and Fidelity International, have increased their gold holdings during the price correction. From investment banks regaining a bullish outlook to institutions actually increasing their positions, the funding dynamics in the gold market are showing an increasingly clear shift.

Gold prices are currently testing the $4,500 per ounce level, still significantly lower than the previous high of around $5,600. However, many institutions believe that this correction has actually improved the risk-reward ratio for gold. Although Federal Reserve Chairman Warsh reiterated his anti-inflation stance at the Jackson Hole symposium, increasing short-term volatility in gold prices, the market generally believes that the impact of hawkish expectations has been largely priced in, and the potential for further significant declines in gold prices is limited.

Societe Generale resumes bullish stance: Hawkish shocks have been absorbed, downside risks are limited.

In its latest report, Societe Generale explicitly stated that after reducing its gold holdings in the first half of the year, the bank believes that the time is ripe to re-enter the market.

Societe Generale analysts pointed out that gold prices initially plummeted under the dual impact of the US-Iran conflict and rising expectations of a Fed rate hike, but have since returned to around $4,500. Meanwhile, market volatility is normalizing, speculative net long positions have rebounded above their two-year average, and the put/call ratio for GLD options has fallen to a six-month low, indicating that market sentiment is shifting back towards bullishness.

"Since 2022, the market has seen a clear shift in mechanisms," Societe Generale analysts wrote. Despite persistently positive real yields, gold remains near historical highs, significantly deviating from the price levels implied by traditional models. The bank believes that structural factors such as continued central bank gold purchases, de-dollarization, geopolitical uncertainty, and sovereign debt concerns are providing a higher price floor for gold.

Regarding the interest rate path, Societe Generale economists' baseline scenario is that interest rates will remain unchanged until 2027, but they also acknowledge that the Federal Reserve may still raise rates once more this year if inflation continues to rise. The bank believes that for gold to have a substantial impact, inflationary pressures far exceeding current levels and a more aggressive policy response from the Federal Reserve would be required.

"The current hawkish adjustment has been largely priced in by the financial markets, and the downside risk for gold appears to be increasingly limited."

Deutsche Bank's "cavalry has arrived": Institutional funding inflection point confirmed, but holdings remain low.

In his "dbMetals All Metals Flow Report" released on September 3, Daniel Ghali, head of metals research at Deutsche Bank, began his report with the words "The Cavalry Has Arrived," confirming a structural shift in the flow of funds in the gold spot market.

The report points out that the selling pressure from commercial and retail investors that has been suppressing spot demand since late summer is drying up, and is being replaced by a wave of buying from discretionary hedge funds, asset management firms, and banks. However, Deutsche Bank also emphasizes that although buying has emerged, these institutional buyers' positions remain significantly low, with underweighting across spot, futures, and ETF dimensions.

Deutsche Bank's report on September 1st outlined the formation of this change: Over the past month, the gold spot market experienced a massive sell-off, with selling intensity reaching the 86th percentile in nearly five years, primarily driven by commercial and retail funds; simultaneously, CTA (Commodity Trading Advisor/Trend-Following Algorithm) funds made significant purchases, at one point pushing their positions to a record high of 33%. However, quantitative indicators measuring the participation of active discretionary funds remained virtually unchanged throughout the late summer trading session and have fallen 60% from their August highs.

"This aligns with our assessment: discretionary investors still hold insufficient positions in gold," the Deutsche Bank report stated. This suggests that the real institutional buying spree may have only just begun, and the upside potential has not yet been fully realized.

Asset management giants are increasing their holdings, and the value of gold as an investment is returning.

According to Bloomberg, several leading asset management institutions have recently increased their gold holdings or will continue to maintain a bullish outlook.

Amundi, Europe's largest asset manager, has bought gold during the price correction and expects it to return to $5,000 per ounce this year. Lorenzo Portelli, head of cross-asset strategy at Amundi Investment Institute, said gold is "considered a cheap, well-hedging, and reasonably liquid asset," but further purchases will depend on a clearer path for Federal Reserve interest rates.

Robeco portfolio manager Arnout van Rijn sees the accelerated central bank gold purchases as a trigger for renewed buying. World Gold Council data shows that official sector net purchases of gold reached 289 tonnes in the second quarter of this year, a record high for the same period. "Gold has become a more widely accepted asset," he said, "and has become an integral part of every regular portfolio."

Sophie Huynh of BNP Paribas Asset Management noted the declining correlation between gold and risk assets, suggesting that gold's traditional hedging properties are returning after a period of speculative trading. "The gold bubble has deflated," she said. "Now, the driving forces behind gold prices are fundamental factors such as central bank gold purchases and multi-asset managers seeking portfolio hedging."

Bridgewater Associates founder Ray Dalio recently issued a stronger warning, advising investors to reduce their bond holdings and allocate up to 15% of their assets to gold to hedge against US debt risks.

$4300 and $4700: Key Thresholds for Gold Bulls and Bears

Despite the overall shift towards optimism among institutions, potential risks remain, and key price levels on the technical front deserve particular attention.

In its report, Deutsche Bank quantified the trigger thresholds for algorithmic trading: if gold prices fall below $4,300/oz, it could trigger the next round of CTA algorithmic selling; if this is coupled with strong non-farm payroll data, the pressure to further liquidate positions could increase. Conversely, if gold prices break above $4,700/oz, it could trigger subsequent futures funds to follow up with buying, equivalent to 13% of the algorithm's maximum open interest.

Societe Generale also acknowledged that the asymmetric pressures in the current international financial markets cannot be ignored: the two-year US Treasury yield has returned above 4%, supporting the US dollar, and Federal Reserve Chairman Warsh's speech in Jackson Hole further strengthened market expectations for another rate hike this year. According to Bloomberg, several asset management professionals interviewed also admitted that gold's breakthrough of the resistance level near $4,600 will not be smooth sailing.

However, Deutsche Bank offers a deeper structural assessment: what drives institutions and reserve managers to seek diversified allocations is more the long-term bear market in government bonds than the decline in risk assets themselves.

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