Deutsche Bank's analysis indicates that Fed repricing and resilient U.S. macro data are the main factors pushing gold lower, more evident since diverging from oil over the past month. Currently trading at around $4,206/oz, the bank's base case anticipates gold reaching $4,800/oz in Q4 if the Fed maintains an indefinite hold near neutral. Conversely, if the Fed implements three to four hikes, the risk case suggests gold could decline to approximately $3,800/oz.

The first FOMC meeting under Chair Warsh showed no resistance to market expectations for rate hikes, with the press conference highlighting the potential for a further hawkish shift. The Taylor Rule estimate is roughly 80 basis points above current market pricing, providing quantitative backing for hawkish advocates. Despite this, Deutsche Bank's house call remains for an indefinite hold near neutral, as inflation expectations are decreasing in tandem with oil prices, and the median dot plot projects only one hike followed by a reversal next year, contrasting with the 48 basis points currently priced into markets through March 2027.

Investment demand factors are notably absent at present. ETF selling persisted after the May NFP report, futures open interest is at a 17-year low, and net long positions are nearer to yearly lows than highs, leaving gold vulnerable until either the Fed pivots or physical demand re-emerges to support prices.
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(Richard Pace is a Reuters market analyst. The views expressed are his own)