Deutsche Bank: “Gold price should be some $400 higher”

In a recent report written by Deutsche Bank analysts Michael Hsueh and Grant Sporre, there is a relationship between gold and monetary expansion. This correlation between them implies that gold price should be some $400 higher, that is, it should be almost $1,700 /oz.

“The balance sheets of the main four central banks [US, China, Japan and ECB] have expanded by 300% since the beginning of 2005. Over the same period as the aggregate central bank balance sheet expanded by 300%, global above-ground stocks grew by 19% in tonnage terms or c.200% in value terms…If we were to assume that the value of gold should appreciate to keep the overall value of the big four aggregate balance sheet equivalent to that of the value of the above ground gold stocks, then gold should be trading closer to USD1,700/oz…Let us be clear; we are not saying that gold will trade up to USD1,700/oz in the near term, but when viewed against the aggregated balance sheet of the ‘big four’ global central banks (the Fed, ECB, BoJ and PBoC) the argument can be made if we view gold as a currency, the metal is worth closer to USD1,700/oz, versus the spot price of USD1,326/oz…”