Gold Spot Flows Hit Inflection Point as Hedge Funds, Asset Managers, Banks Step In

Deutsche Bank's latest metals flow report shows that gold spot flows have reached an inflection point, with hedge funds, asset managers, and banks stepping in to buy, replacing the commercial and retail groups that had been reducing positions. On key price levels, $4,300 is the algorithmic selling trigger line, and $4,700 is the futures buying trigger line. More importantly, discretionary investors remain underweight in spot, futures, and ETFs, suggesting that institutional positioning may be just beginning.

Since late summer, commercial and retail groups have been reducing positions, weighing on gold spot demand. But Deutsche Bank's latest report shows this pattern is changing.

According to Zhuifeng Trading Desk, on September 3, the bank released its latest "dbMetals All-Metals Flow Report," which opens with the phrase "Here Comes the Cavalry" to set the tone. Daniel Ghali, head of metals research, wrote:

Gold spot flows have turned. Previously, commercial and retail groups were persistently selling during the late-summer rally, but now non-commercial participants are taking the lead—led by discretionary hedge funds, asset managers, and banks, whose actions collectively point to strong physical gold demand at current prices.

Deutsche Bank explicitly names three main forces: discretionary hedge funds, asset managers, and banks are becoming the main buyers. Although buying has emerged, these buyers' current positioning remains low. The report states:

This is consistent with our assessment: the discretionary community remains under-positioned in gold. Evidence from futures and forward curves suggests that the late-summer surge was primarily related to liquidity dynamics, and the dual financial suppression measures unexpectedly failed to attract large-scale discretionary inflows.

Discretionary investors remain underweight across spot, futures, and ETFs. This may mean that the real institutional positioning phase is just beginning, and upside potential has yet to be released.

CTA Risk Remains, Two Key Price Levels to Watch

Deutsche Bank does not shy away from risks. CTAs (commodity trading advisors/trend-following algorithms) are currently in a slight buying mode, and commercial selling has also moderated. But the report clearly warns:

A break below $4,300/oz could trigger the next round of algorithmic selling programs, and if combined with strong nonfarm payrolls data, there is potential for further liquidation.

A break above $4,700/oz would trigger subsequent futures inflows, with total buying equivalent to +13% of the algorithm's maximum positioning.

Deutsche Bank summarizes the current situation in three points:

The cavalry has arrived

Discretionary participants remain broadly underweight in spot, futures, and ETFs

Once $4,700 is breached, algorithms will follow with buying

Structural Bull Market: Hormuz More Important Than the Fed

Beyond short-term tactical considerations, Deutsche Bank provides a clear judgment on gold's long-term logic.

Analysts point out that the fundamental driver of gold's structural bull market is reserve diversification, and this logic has extended beyond interest rates and prices into the geopolitical realm. He writes:

In our view, the Strait of Hormuz conflict is currently more critical in the reserve scramble than Fed Chair Warsh's inflation fight. This directly relates to the foreign exchange reserve pools of large energy importers and exporters, which may be active participants in the gold market.

Deutsche Bank also emphasizes that what is driving institutions and reserve managers to seek diversified assets is the multi-year bear market in government bonds, not the decline in risk assets.

On energy prices, the analyst believes:

Persistently rising energy prices are a more potent threat than a hawkish Fed. But as long as energy prices do not break new highs, the current setup remains bullish. The market still worries about a hawkish Fed, but the next surprise is likely to be strong performance in precious metals.

Other Metals: Platinum and Palladium Face Algorithmic Selling Pressure, Nickel Has Supply Disruptions

The report also covers fund flows in other metals, with key points as follows:

Platinum and palladium: Algorithms are heavily biased toward selling. Deutsche Bank estimates that if prices decline, CTA selling programs for platinum could reach -12% to -26% of the algorithm's maximum positioning over the next week, and for palladium -18% to -30%.

Aluminum: CTAs are slightly biased toward buying, but the asymmetry has largely dissipated, and the direction over the next week tends to be neutral.

Nickel: Potential supply disruptions are emerging, but price reaction is limited so far. Deutsche Bank notes that the LME three-month nickel price of $17,300/ton is the next key level to trigger large-scale CTA buying, with buying size up to +13% of the algorithm's maximum positioning. If El Niño-related water resource disruption risks rise, CTA buying in a breakout scenario could reach +30% of the algorithm's maximum positioning.