Is the adjustment of gold prices nearing its end? Deutsche Bank: The sell-off of gold ETFs is weakening, and the impact of China's new tax policy is minimal

According to the Wind Trading Platform, for investors focused on the gold market, the latest report released by Deutsche Bank on November 3, 2025, conveys two key signals: First, the recent large-scale sell-off of gold ETFs (Exchange-Traded Funds) that has driven gold prices down is showing signs of weakening, indicating that this round of price correction is nearing its end rather than the beginning of a new decline. Second, the much-anticipated adjustment of China's gold value-added tax (VAT) rules is expected to have a mild and limited overall impact on China's gold demand and imports.

This means that the risk of gold prices further plunging to the range of $3,700-$3,800 per ounce is decreasing for investors. Although short-term market volatility still needs to be monitored, fundamental factors are expected to reassert their dominance in the market before the end of the year, supporting a rebound in gold prices.

ETF Sell-off Weakens, Gold Prices Show Resilience

One core phenomenon observed in the report is that the driving force behind the recent adjustment in gold prices—the sell-off of gold ETFs in developed markets—is reaching its "final throes." Data shows that in the past eight trading days, ETF investors reduced their positions on seven days. However, the cumulative scale of this sell-off has reached 86% of the total amount sold during the period from April to May, indicating that most of the selling pressure may have been released.

A noteworthy detail is that the most intense day of sell-off (October 27, with a reduction of 449,000 troy ounces) occurred four days after the largest single-day drop in gold prices. This time lag strongly supports the view that, at least statistically, the decline in gold prices triggered the outflow of funds from ETFs, rather than the sell-off of ETFs leading to the price drop. This is crucial for assessing the causal relationship between market sentiment and capital flows.

Moreover, gold prices have demonstrated encouraging resilience. After Federal Reserve Chairman Jerome Powell hinted in the October meeting that "a rate cut in December is not a foregone conclusion," leading to a reduction in market expectations for a rate cut from 23 basis points to 17 basis points, gold prices remained above $3,900 per ounce. At the same time, two non-voting regional Fed presidents expressed a preference for maintaining interest rates, and these hawkish signals, which are adverse to gold, failed to break through key support levels.

Short-term Volatility Alert: A Cautious Signal

Although the weakening sell-off is a positive signal, the report also issues a short-term risk warning. Currently, the realized volatility of gold over one month is significantly higher than the implied volatility, with the gap reaching its largest value since March 2020. Specifically, the difference between implied volatility and realized volatility is -12.6, deviating from the mean by as much as 4.3 standard deviations.

For investors, this means that the actual market price fluctuations are much more severe than what the options market expects. This high volatility environment may suppress investors' willingness to quickly rebuild their long positions in gold, leading to a lack of strong upward momentum in gold prices in the short term. However, historical experience shows that this volatility gap typically narrows within 2 to 3 months, returning to normal levels.

Limited Impact of China's New Tax Policy, Solid Demand Fundamentals

Another focus of the market recently is the adjustment of China's value-added tax rules on gold. It is reported that this move will increase the costs for gold jewelry sellers by 7%. However, Deutsche Bank believes that the impact of this policy on China's gold import demand will be "moderate," mainly based on the following four factors:

1. Timing of Policy Hedge: The government chose to implement the new policy after gold prices experienced a decline, and the drop in gold prices roughly offsets the increased costs for jewelers. This move can be seen as neutralizing the impact of rising costs on the consumer side.

2. Inelastic Demand Characteristics: In the long term, China's demand for gold is relatively inelastic. The report provides two strong short-term examples: after the "Golden Week" holiday, despite gold prices rising by 11% compared to before the holiday, China's gold ETF demand continued to rise, reaching a daily inflow of 0.14 million (i.e., 140,000) troy ounces on October 16. In September 2025, despite gold prices rising by 9%, China's gold import volume actually increased by 6%.

3. Investment Products Unaffected: This value-added tax adjustment mainly targets gold jewelry. Physical gold investment products, including gold bars, are unaffected and will continue to enjoy a 6% input tax deduction from the 13% value-added tax.

4. Merchants May Absorb Costs: In order to gain a competitive advantage in a fierce market, jewelers may choose to temporarily compress their profit margins to absorb the increased tax costs rather than fully passing them on to consumers.

Therefore, Deutsche Bank assesses that the change in China's value-added tax rules is unlikely to have a significant or sustained negative impact on China's gold jewelry demand or the speed of gold imports