Deutsche Bank has lowered its gold price forecast as changing Federal Reserve expectations and resilient US economic data continue to pressure the precious metal.
The bank also highlighted weak investment demand, suggesting that gold may struggle to regain momentum without a meaningful shift in monetary policy expectations.
Deutsche Bank Lowers Gold Price Forecast
Deutsche Bank analyst Michael Hsueh revised the bank’s base-case gold forecast to $4,800 per ounce for the fourth quarter.
That projection assumes the Federal Reserve keeps interest rates unchanged for an extended period.
However, Hsueh warned that gold could fall as low as $3,800 per ounce under a more bearish scenario in which markets price in three or four Fed interest rate increases.
Hawkish Fed Outlook Pressures Gold Prices
According to Deutsche Bank, the first Federal Open Market Committee meeting under Federal Reserve Chair Kevin Warsh showed little resistance to market expectations for higher interest rates.
The accompanying press conference also suggested that the central bank could adopt an even more hawkish policy stance.
Hsueh noted that a Taylor rule estimate currently points to an appropriate interest rate approximately 80 basis points above the existing level. This supports the possibility that monetary policy could remain tighter than investors previously expected.
Higher interest rates typically create pressure on gold because the metal does not provide interest or dividend income. As bond yields rise, income-producing assets may become more attractive to investors.
Gold and Oil Divergence Signals Fed Repricing
Deutsche Bank identified last month’s divergence between gold and oil prices as a turning point for the precious metal.
The bank believes this was when the repricing of Federal Reserve policy became the dominant force affecting gold prices.
Although oil remained influenced by supply, demand and geopolitical factors, gold responded more directly to changing expectations for US interest rates.
Gold ETF Selling Continues
Investment demand indicators remain broadly negative, according to Deutsche Bank.
Gold exchange-traded funds continued to experience selling after the release of the May US nonfarm payrolls report. Strong labour market data reinforced expectations that the Federal Reserve may keep monetary policy restrictive.
Futures market activity also remains weak. Open interest has fallen to its lowest level in 17 years, while net long positioning is now closer to its lowest point of the year than its highest.
These trends suggest that institutional and speculative investors currently have limited confidence in a sustained gold price recovery.
Chinese and Indian Demand May Remain Weak
Physical gold demand in China and India is also unlikely to provide significant support in the near term.
The Chinese gold premium over Comex prices has moved into a small discount. According to Deutsche Bank, this indicates that Chinese gold imports may not increase enough to support global prices.
Meanwhile, India’s recent increase in value-added tax on gold imports is expected to weaken demand in one of the world’s largest gold markets.
Higher import costs could discourage purchases from consumers, jewellers and local investors.
Central Bank Buying Offers Limited Support
Central bank demand remains the main positive factor in Deutsche Bank’s gold outlook.
The bank expects emerging-market central banks to continue increasing their gold reserves as they attempt to catch up with developed-market institutions.
Many central banks have been diversifying their reserves away from traditional currencies and increasing their exposure to gold.
However, Hsueh noted that official-sector buying had not accelerated by the end of the first quarter.
As a result, central bank purchases may not be strong enough to offset weaker demand from ETFs, futures traders and major consumer markets.
Gold Outlook Depends on Federal Reserve Policy
Gold’s direction may now depend heavily on future Federal Reserve decisions and incoming US economic data.
A more dovish shift, weaker labour market conditions or falling inflation could support gold by reviving expectations for interest rate cuts.
However, continued economic resilience and rising expectations for rate increases could place further pressure on prices and increase the risk of Deutsche Bank’s bearish scenario.
