JPMorgan Chase Bullish on Gold: Drawing lessons from history, bigger gains are yet to come

Zhitong Finance APP learned that after hitting a historical high this year, gold still has room to rise, as "the change in interest rate environment may be a particularly strong tailwind".

Analysts at Zhitong Bank Investment Research Institute stated in a report on April 15 that if the Federal Reserve is confident that U.S. inflation will continue to fall to its annual target of 2%, it may cut interest rates later this year, which is "no longer a secret". However, "less known is that some of the strongest performances of gold in the past have occurred during Federal Reserve rate-cutting cycles".

According to Zhitong Bank's data, historically, in the 24 months after the Federal Reserve began cutting interest rates, the price of gold has on average risen by 20%. Meanwhile, traders have delayed their expectations of a Federal Reserve rate cut to later this year, as recent inflation data has been stronger than expected, indicating that despite monetary policy tightening, the U.S. economy remains resilient.

Taylor Krystkowiak, an investment strategist at Themes ETFs, said in a phone interview on Wednesday, "Some hopes for a shift in Federal Reserve policy have been dashed", and if investors continue to hedge against the possibility of rising inflation, the price of gold may continue to rise. He stated that if the Federal Reserve cuts rates prematurely, "people will see gold as a way to hedge against Federal Reserve policy mistakes".

Currently, most major central banks globally have kept their policy rates at relatively high levels to bring inflation down to the 2% target. Federal Reserve Chairman Powell said on Tuesday, "Given the strong momentum in the labor market and the progress we have made on inflation so far, allowing restrictive policies more time to work and letting data and evolving circumstances guide us is appropriate".

According to the latest data from the CME Group's FedWatch tool, federal funds futures indicate that the Federal Reserve is expected to start cutting rates in September. Earlier this year, many traders had expected the Federal Reserve to cut rates multiple times in 2024, but federal funds futures now suggest there may only be two cuts.

According to the latest data from FactSet, the price of gold is currently around $2376 per ounce, up about 15% year-to-date.

Analysts at Zhitong Bank stated, "We have raised our forecast for 2024 to $2300-2400 per troy ounce, and even higher for 2025, to $2400-2500 per troy ounce. We suspect that before rising in 2025, the price of gold may need to take a breather".

In March last year, Robert Minter, ETF Investment Strategy Director at Abrdn, pointed out that historically, "we have seen that the Federal Reserve pausing rate hikes actually triggered a bull market in gold". He mentioned that in 2000, 2006, and 2008, when the Federal Reserve paused rate hikes, gold saw an increase Since the Federal Reserve paused its rate hikes last year, the price of gold has been rising, with the last rate hike by the Federal Reserve occurring in July last year.

Analysts at the Bank of Wealthy Nation stated that changes in the interest rate environment over the next 6 to 18 months may be favorable for the price of gold. The report mentioned that the fundamental trends currently driving the rise in gold prices include "global central banks continuing to buy gold", increasing demand from emerging market consumers, "stagnation in supply growth", and escalating geopolitical tensions.

"We expect these trends to not change quickly," they added