Deutsche Bank has cut its gold forecast by a little over 20%, saying prices could fall to $3,800 an ounce if markets price in three to four Federal Reserve rate hikes. The German lender warned that monetary policy risks have turned decisively negative for bullion.
“Our revised base case is for gold to reach $4,800/oz in Q4, consistent with an indefinite Fed hold, while a risk case of pricing 3–4 Fed hikes may bring gold to $3,800/oz,” Deutsche Bank analyst Michael Hsueh said in a report on precious metals.
The report said that “Fed repricing, together with resilient US macro data, has played the primary role in pushing gold lower.”
August gold futures retreated 1.6% Tuesday to $4,135 a troy ounce, data from investing.com showed. Gold futures have retreated from an all-time high of $5,589 a troy ounce, when some market participants had predicted the yellow metal to breach the $6,000 an ounce mark.
Globally, gold has fallen nearly 10% in a month.
Asian demand signals for the traditional store of value have also deteriorated.
In China, the traditional premium over global prices has flipped to a discount, suggesting weaker imports, while a stronger yuan and signs of a stabilising property market are reducing the need for gold as a hedge, the report said.
In India, demand is expected to soften further after a sharp rise in import taxes, with the report noting that “the recent hike of gold import VAT is likely to suppress demand.”
Weak investment flows and soft physical demand are weighing on the metal in the near term.
Exchange-traded fund (ETF) holdings have fallen to a low for the year, with ETF investors turning sellers in the rise in gold prices, while futures positioning remains subdued, with open interest at a 17-year low.
“For the time being, it does not appear that either ETF flows or futures investment (measured in contracts) are poised to return to Q1 highs,” the report said.
The report said bullion’s relationship with macro drivers has also shifted in recent months. Earlier in the year, gold tracked oil prices amid geopolitical tensions, but that link has broken down.
“Gold’s link to Fed pricing was more persistent and gained the upper hand over lower oil prices,” it said, highlighting a transition to interest rates as the dominant driver.
That shift reflects the growing influence of real yields, with tighter policy expectations offsetting any support from lower energy prices.
“All of the above suggests a neutral outlook for gold into H2, with Fed data dependency implying gold data dependency,” the report said.
In its base case, Deutsche Bank expects bullion to stabilise as the Fed pauses. Its house view remains for “an indefinite hold near neutral,” even as markets continue to price tightening.
Gold could rise toward $4,800/oz in a more dovish scenario marked by softer inflation and weaker oil prices, as “market-based measures of inflation expectations are declining with oil,” potentially reducing the need for further tightening.
