Gold Price Adjustment Nears End? Deutsche Bank: Gold ETF Selling is Weakening, China’s New Tax Policy Has Limited Impact

Gold Price Adjustment Nears End? Deutsche Bank: Gold ETF Selling is Weakening, China’s New Tax Policy Has Limited Impact

According to Chase the Wind Trading Desk, for investors focused on the gold market, Deutsche Bank’s latest report released on November 3, 2025, conveys two key signals: First, the recent driver behind gold price corrections—large-scale selling of gold ETFs (exchange-traded funds)—is showing signs of weakening, indicating that this round of price correction is nearing its end, rather than signaling the start of a new downward cycle. Secondly, the much-discussed adjustments to China's gold value-added tax (VAT) rules are expected to have a mild and limited overall impact on China’s gold demand and imports.

This means for investors that the risk of gold prices plunging further to the $3,700-$3,800 per ounce range is decreasing. Although short-term market volatility still requires caution, fundamental factors are expected to once again dominate the market before the end of the year, supporting a rebound in gold prices.

ETF Selling Tide Weakens, Gold Prices Show Resilience

The report identifies a core phenomenon: the main force driving recent gold price adjustments—waves of gold ETF selling in developed markets—are “nearing their end.” Data shows that over the last eight trading days, ETF investors reduced their positions on seven of those days. However, the cumulative scale of this round of selling has reached 86% of the total volume sold during April and May, suggesting that most of the selling pressure may have already been released.

An interesting detail is that the most intense day of selling in this round (October 27, with 449,000 troy ounces reduced) happened exactly four days after the biggest single-day close decline in gold prices. This time lag strongly supports the view that, statistically, it was the fall in gold prices that triggered ETF outflows, rather than ETF selling driving down prices. This is crucial for judging the causal relationship between market sentiment and capital flows.

Furthermore, gold prices have shown encouraging resilience. After Fed Chair Powell at the October meeting hinted that a December rate cut was “not a certainty,” causing expectations for rate cuts to fall from 23 basis points to 17, gold still held above $3,900 per ounce. Meanwhile, two regional Fed presidents without voting power have expressed a preference to keep rates unchanged, yet these hawkish signals, usually headwinds for gold, have not broken key support levels.

Short-Term Volatility Alert: A Cautious Signal

Although the easing of selling pressure is positive, the report also gives a short-term risk warning. Currently, gold’s one-month realized volatility is much higher than implied volatility, with a gap that has reached the largest since March 2020. Specifically, the difference between implied and realized volatility stands at -12.6, deviating from the mean by as much as 4.3 standard deviations.

For investors, this means that actual market price fluctuations are much more drastic than what the options market is expecting. Such a high-volatility environment may dampen investors’ willingness to swiftly rebuild long positions in gold, resulting in a lack of strong upward momentum for gold prices in the short term. However, historical experience indicates that such volatility differentials usually narrow back to normal within 2 to 3 months.

Limited Impact from China’s New Tax Policy, Demand Fundamentals Remain Solid

Another focus of recent market attention is China’s adjustment to its gold VAT rules. Reportedly, this will increase gold jewelry sellers’ costs by 7%. However, Deutsche Bank believes the policy's impact on China’s gold import demand will be “mild,” mainly for the following four reasons:

1. Policy Timing: The government chose to implement the new measures after gold prices had already experienced a drop, with the price decline roughly offsetting the increased cost for jewelers. This can be seen as neutralizing the cost increase for consumers.

2. Inelastic Demand: Long-term, China's demand for gold shows relative inelasticity. The report gives two strong short-term examples: After the “Golden Week” holiday, although gold prices had risen 11% from before the holiday, demand for China’s gold ETFs continued to grow, with daily inflows reaching 140,000 troy ounces on October 16. In September 2025, even though gold prices rose 9%, China’s gold imports increased by 6%.



3. Investment Products Not Affected: The VAT adjustment mainly targets gold jewelry. Physical investment gold products, including gold bars, are unaffected and will continue to benefit from a 6% input tax deduction out of the 13% VAT.

4. Jewelers May Absorb Costs: To maintain competitiveness in a cutthroat market, jewelers may choose to temporarily compress their profit margins to absorb the added tax costs instead of completely passing them on to consumers.

Therefore, Deutsche Bank judges that the VAT rule changes in China are unlikely to cause a significant or sustained negative impact on China's gold jewelry demand or gold import pace.

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The above wonderful content is from Chase the Wind Trading Desk.

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