$8,000 Gold Price? Where Does Deutsche Bank Get the Confidence for Its Five-Year Target Price?

According to Deutsche Bank's analysis, as central banks around the world continue to increase the share of gold in their reserve assets, the precious metal still has room for further gains.

Sachdeva, Mallika, a strategist at the bank, noted in a report published on Monday that as monetary policymakers seek tools to hedge against geopolitical turmoil,gold's share in global central bank reserves has risen from about 10% in the 1990s to 30% today. Meanwhile, the US dollar's share in foreign central bank reserves has fallen from over 60% to 40%.

Sachdeva said:

"The gap between the dollar and gold's share in reserves is now only 10 percentage points, which is extremely noteworthy."

The London-based strategist believes that central banks appear to be reversing the 1990s trend, when they shifted asset allocations from gold to the US dollar.

Sachdeva also acknowledged that about 80% of the increase in gold's share of central bank reserves was due to the rise in gold prices themselves rather than new purchases. Last year, gold posted its strongest annual gain since 1979 — ironically, the year of the Iranian Revolution. Over the past 12 months, gold prices have risen by more than 40% cumulatively.

However, Sachdeva pointed out that central bank purchases still accounted for a significant share of the growth in reserve holdings, and it was often central bank buying that drove gold prices higher. He said: "Therefore, there is an endogenous link between purchases and prices, and the two together have driven the increase in gold's share."

Gold has long been regarded by investors as a safe-haven asset during times of global conflict. Since 2022, this attribute has continuously driven investors toward gold — first due to the Russia-Ukraine conflict, and then the US and Israeli strikes against Iran.

The strategist said thatthe next move in gold prices will partly depend on how much gold and US dollars emerging economy central banks will ultimately hold.Deutsche Bank's analysis of International Monetary Fund (IMF) data showed that since the global financial crisis, all central bank gold purchases have come from emerging market central banks.

Sachdeva further stated thateven if total foreign exchange reserves in emerging markets decline to $5 trillion, as long as they set a target of 40% for gold's share in their reserves, gold prices could reach $8,000 per ounce over the next five years. This level would be approximately 70% above current gold prices.