Gold may fall to $3,800 on Fed hike risk; ETF outflows, weak Asia demand weigh – Deutsche Bank report

Gold could drop to $3,800 an ounce if markets price in three to four Federal Reserve rate hikes, a Deutsche Bank report said, warning 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 precious metals report.

The downside scenario underscores a sharp shift in gold’s drivers, with the report noting that “Fed repricing together with resilient US macro data has played the primary role in pushing gold lower.”


Asian demand signals 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.

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 holdings have fallen to a low for the year, with “ETF investors… sellers into the rise in gold prices,” while futures positioning remains subdued, with open interest at a 17-year low.

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, suggesting limited upside unless rate expectations ease.

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.

While central bank buying remains a structural support, Deutsche Bank cautioned that it has not accelerated enough to offset weak investment demand, leaving bullion vulnerable to further swings in rate expectations.