According to commodity analysts at JPMorgan, gold prices will continue to hold above $2,000 into the new year. The precious metal will benefit from additional interest rate cuts in 2024 as well as the return of investment demand.
Precious metals will partially lose the additional support provided by inflation!
cryptokoin.comAs you follow from , although gold prices remain above $2,000, they are having difficulty advancing. The investment bank still maintains its view that “our only structural uptrend forecast is for gold and silver.” However, precious metals are expected to lose some of the additional support provided by higher inflation. Natasha Kaneva, Head of Global Commodity Strategy at JPMorgan, makes the following assessment:
Commodities are unlikely to benefit from core inflation in 2024. Inflation needs to fall below 3%. So these, along with correct timing of the business cycle, are the two conditions required to initiate long positions. It will also make the industry’s outlook very tactical in 2024.
Economic and geopolitical uncertainties tend to be positive factors for gold, which is widely viewed as a safe-haven asset because it remains a reliable store of value. Gold prices have low correlation with other asset classes. Therefore, it is possible that it can act as insurance during periods of falling markets and geopolitical stress. A weaker dollar and lower interest rates also increase the appeal of non-yielding bullion. Analysts point out that the expectation that the Fed will cut interest rates played an important role in the recent price increase of gold, as it did in the last three interest rate cut cycles.
Gold prices will pull back before an breakout rally
“Among all metals, we have the highest confidence in a medium-term bullish forecast for both gold prices and silver prices through 2024 and into the first half of 2025,” said Gregory Shearer, Head of Base and Precious Metals Strategy at JPMorgan. But the timing of an introduction will continue to be critical,” he says. In this regard, Shearer makes the following statement:
At the moment gold still looks quite rich relative to underlying rates and foreign exchange (FX) fundamentals. It is also still vulnerable to another modest pullback in the near term as expectations for a Fed rate cut materialize sooner than we had anticipated.
Shearer adds that price pullbacks in the coming months should be considered as buying opportunities before an exit rally, which they expect to start in mid-24 as US GDP growth slows down.
Bets on Fed rate cuts and their effects
JPMorgan Research predicts that the Fed will cut 125 basis points in the second half of 2024. This figure is 25 basis points more than they predicted in the 2024 outlook they published last month. “Forecasts for gold prices are based on official Fed forecasts that call for core inflation to decline to 2.4% in 2024 and 2.2% in 2025 before returning to the 2% target in 2026,” analysts say.
Based on this updated economic outlook, JPMorgan estimates the US 10-year nominal yield will fall 30 bps from 3.95% at the end of Q1 to 3.65% at the end of 2024. It predicts that real returns will decline from 1.75% to 1.45% in the same time period. Shearer explains the impact of these predictions on gold prices as follows:
During this period, we think that the Fed’s interest rate cut cycle and falling US real yields will be the sole driving force behind gold’s breakout rally later in 2024. Gold’s inverse relationship with real yields has historically weakened during the Fed’s interest rate hike cycles, then strengthened again as yields fell during the transition to the interest rate cut cycle.
JPMorgan’s gold price predictions for 2024 and 2025
According to analysts, falling yields will push gold prices to new nominal highs in the second quarter of 2024. Thus, in the 4th quarter, gold will average $2,175. Analysts expect the three-month average peak to be $2,300 in the 3rd quarter of 2025. Additionally, analysts predict that central bank purchases will continue to support gold prices throughout 2024. They predict that positive net ETF flows will eventually return later in the year. Shearer says the following on this subject:
There is still room to increase reserves at some central banks as institutions seek to diversify their reserve holdings. Therefore, purchasing will remain structurally elevated compared to the late 2010s.
Meanwhile, analysts predict that increased investor appetite will also make a significant contribution to the 2024 gold price rally, after two years of declining ETF gold holdings and below-average net long positions on stock markets.
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