JPMorgan Chase is positioning itself in anticipation of an impending US recession, foreseeing a surge in gold prices to surpass $2000 an ounce by the end of this year. The bank's analysts believe that the precious metal will hit fresh records in 2024 as interest rates start to decline.
According to Greg Shearer, Executive Director of Global Commodities Research at JPMorgan, falling real yields in the United States will be a significant catalyst for gold when the Federal Reserve begins deploying rate cuts, which are expected to occur in the second quarter of next year.
Over the past 12 months, gold has rallied around 15 per cent, supported by signals that the US rate-hiking cycle was reaching its conclusion, increased central bank purchases, and periodic safe-haven demand. In early May, the metal nearly reached its all-time high of $2075.47 an ounce, recorded in 2020.
JPMorgan has set an average price target of $2175 an ounce for bullion in the final quarter of 2024. The bank's outlook is tilted towards the upside, given its forecast for a mild US recession that is likely to hit before the Fed begins easing.
Greg Shearer commented on the bank's optimistic stance, stating, "We’re in a very prime place where we think gold ownership and long allocation to gold and silver is something that acts as both a late cycle diversifier and something that will perform as we look to the next sort of 12, 18 months."
Unlike equities and cyclical commodities like aluminum and copper, which can experience varying returns based on economic scenarios, gold and silver are relatively agnostic to the type of landing the US economy experiences. However, a more pronounced recession could result in a more dramatic reduction in interest rates.
The net-long positions of money managers in gold futures have increased this year, but Shearer noted that the trade is not overly crowded yet. Additionally, other sources of physical demand have come into play, with central bank purchases becoming a significant driver of gold prices.
"There’s an eagerness here to really buy in and diversify allocation away from currencies," Shearer explained, highlighting that geopolitical risks have made gold even more appealing to governments.
With JPMorgan's bullish outlook on gold amid the looming possibility of a US recession, investors and market participants are closely watching the precious metal's trajectory, eyeing potential gains in the coming months and beyond.
