Gold Slides Toward $4,000 as Dollar, Rate Expectations Shift

Deutsche Bank cut its gold price outlook by just over 20%, warning the metal could drop to $3,800 an ounce if financial markets start pricing in three to four Federal Reserve rate increases. The bank said the balance of risks for bullion has shifted clearly to the downside.

Analyst Michael Hsueh wrote in a precious-metals report that the revised central scenario projects gold at $4,800 an ounce in the fourth quarter, assuming the Fed holds rates unchanged for an extended period. Under a downside case where markets price in three to four rate hikes, gold would fall to $3,800, he said.

Gold futures for August delivery fell 1.6% on Tuesday to $4,135 a troy ounce on the New York Mercantile Exchange. Spot gold touched $4,087.68 on Wednesday, the lowest since June 11. The metal has dropped roughly 10% over the past month from a record $5,589 an ounce – a level some participants had expected to break $6,000.

The driver is the US dollar, which climbed to its highest in more than a year. A stronger dollar makes gold more expensive for holders of other currencies, curbing international demand. Traders now price three rate increases this year, according to the CME FedWatch Tool. The Deutsche Bank report said the repricing of Fed expectations, combined with persistent strength in US economic data, has been the main factor pushing gold lower.

President Donald Trump said Tuesday that Iran had agreed to allow nuclear inspections indefinitely. Tehran denied that claim, creating fresh doubt about the durability of the peace process. The conflicting statements injected some geopolitical uncertainty but did little to slow gold's slide.

Weaker demand in Asia is also showing up. The Deutsche Bank report flagged a deterioration in appetite for the safe-haven asset across Asian markets, which had been a key support earlier in the rally.

On the exchange side, the Dubai Commodities Exchange plans to introduce a same-day settlement gold contract to attract safe-haven demand, its chief executive told Reuters. Ghana's Gold Board said from July 1 it will align its pricing framework with LBMA benchmarks and impose strict limits on purchase prices to improve market discipline.

CME Group, which lists the benchmark gold futures, carries an Alpha Score of 49, reflecting mixed sentiment. More detail is on the CME stock page.

The next data point comes Thursday with the release of US Personal Consumption Expenditures data, the Federal Reserve's preferred inflation gauge, due at 8:30 a.m. ET.