Deutsche Bank Slashes Gold Forecasts by Up to 22% Amid Fed Uncertainty and Weakening Demand Signals

Deutsche Bank Slashes Gold Forecasts by Up to 22% Amid Fed Uncertainty and Weakening Demand Signals​

Deutsche Bank has significantly tempered its outlook for gold, reducing price forecasts by as much as a fifth following growing investor concerns about US monetary policy and softening investment demand. The research suggests that while current levels near $4,140 per ounce still offer upside potential, the bullish momentum seen in recent periods is rapidly fading.

Deutsche Bank Slashes Gold Targets Amid Fed Repricing Fears​

Michael Hsueh, a research analyst at Deutsche Bank, revised his targets for bullion to $4,300 an ounce in the third quarter. This represents a substantial reduction from previous expectations. For the final three months, the bank projected gold at $4,800 per ounce, marking a 17% decrease from the prior outlook.

This cautionary tone echoes recent moves from other major financial institutions. Goldman Sachs Group Inc. also trimmed its year-end forecast for gold by $500 an ounce, setting the target at $4,900, based on their view that US central bank rate cuts are unlikely this year.

Market Dynamics and Declining Support for Gold​

Gold prices have recently seen a downturn, having slumped by more than 11% so far this quarter. Initially, geopolitical tensions in the Middle East drove up energy prices, which had fueled expectations of tighter monetary policy globally.

The Federal Reserve officials at its most recent rate-setting meeting chose to maintain an unchanged policy. However, they simultaneously signaled increasing support for future interest rate hikes. This context is further colored by statements from new Chairman Kevin Warsh, who vowed a commitment to price stability.

Demand Trends and Future Scenarios​

Hsueh noted that "Fed repricing, together with resilient US macro data," are the primary factors contributing to gold's recent decline. The bank’s fourth-quarter forecast is contingent on the Federal Reserve maintaining steady rates. If however, three to four hikes are implemented by the Fed, the model suggests gold could fall toward $3,800 per ounce.

Investor confidence indicators also show weakness. Continued sales from gold backed exchange traded funds indicate that the usual market support for the precious metal is "notably absent." Furthermore, China's onshore discount against Comex prices suggests that import demand will not be a stabilizing factor for the metal in the near term.

Central Bank Demand Remains Key Pillar of Strength​

Despite the cautionary elements surrounding investment and monetary policy, Deutsche Bank identified one critical area of resilience: central bank buying power. The analyst stated that "the one pillar which remains strong is central bank demand," anticipating this trend will persist for some time ahead.