Gold and silver prices face elevated downside risk in the coming week due to the annual rebalancing of the Bloomberg Commodity Index, according to Deutsche Bank analysis. The rebalancing process is expected to trigger portfolio adjustments by index-linked funds, resulting in increased selling in commodities whose index weightings are reduced.
Bloomberg Commodity Index annual rebalancing
Deutsche Bank analyst Michael Hsueh said the Bloomberg Commodity Index rebalancing will take place between January 9 and January 15. During this period, funds tracking the index are required to realign holdings in line with revised commodity weightings, which can lead to selling pressure in commodities facing weight reductions.
Commodities affected by rebalancing
According to the Deutsche Bank report, gold, silver and aluminium are among the commodities expected to face selling pressure during the rebalancing window. In contrast, commodities such as cocoa, crude oil, natural gas and gasoil are expected to benefit from the reallocation process as capital shifts across commodity segments.
Index weighting rules and gold exposure
The Bloomberg Commodity Index follows a diversification rule under which the weighting of any single commodity cannot exceed 15 percent. Gold’s current weighting in the index is estimated at around 20.4 percent, necessitating a reduction to approximately 14.9 percent as part of the rebalancing exercise.
Estimated gold sales from index-linked funds
The reduction in gold’s index weighting implies that funds linked to the Bloomberg Commodity Index will need to sell part of their gold holdings. Deutsche Bank estimates that approximately 2.4 million troy ounces of gold could be sold during the rebalancing period, potentially concentrated over five trading days.
Potential impact on gold prices
Michael Hsueh said that based on historical trends observed in exchange-traded products, the anticipated selling could exert downward pressure of around 2.5 percent to 3 percent on gold prices. He added that the actual price impact would depend on whether market data are assessed on a weekly or monthly basis.
Silver outlook during rebalancing
Silver is also expected to be affected by the rebalancing process. Based on open interest and average daily trading volume data, gold and silver are among the commodities where the largest additional supply could emerge due to index-related selling, indicating continued pressure on silver prices in the coming week.
