Double-click on 'dollar and high interest', will gold price 'hold on now, win the future'?

Since last year, **international gold prices have experienced a number of turmoil, depressed by higher real yields on U.S. debt and a stronger dollar. **Gold prices have recently retreated after experiencing sustained gains. The COMEX gold futures contract has fallen for nine consecutive days since late September, with a cumulative decline of 5.43 per cent. But in the medium term, gold prices as a whole remain resilient, and even after a correction, the COMEX gold futures contract is still up 12.47 per cent since its last November low. * *! JPMorgan Chase believes that since 2022, various catalysts, from increased gold purchases by central banks to geopolitical factors (such as Monday Palestinian-Israeli conflict drives safe-haven buying into gold), have helped gold prices remain at high levels. And **looking ahead, Komo remains bullish on gold prices, believing that real U.S. bond yields and the eventual reversal of the dollar later next year will push gold prices above $2000/oz. **In a recent report, analyst Gregory C. Shearer of the bank predicted that gold prices will reach a new high in the second half of 2024 (average price of US $2175/oz in the fourth quarter of 2024) and further increase in 2025. ## JPMorgan Chase: The negative correlation between gold prices and real yields on U.S. bonds is not asymmetric For a long time, gold and real yields on 10-year U.S. bonds have maintained a perfect negative correlation. But this negative correlation has not been evident in recent months. **Since the end of July, the real yield on the US 10-year Treasury note has risen 87 basis points (54%), reaching its highest level since 2009 last week, while gold prices have fallen only 5%. * *! **According to Mo, gold and 10-year U.S. bond real yields are not completely decoupled. **Historically, the negative correlation between gold prices and real yields has been weak during the Fed's rate hike cycle, and when the Fed pauses rate hikes, cuts rates and keeps rates low, U.S. bond yields will fall and gold prices will strengthen again, the bank said. * * * ! * * *! **The report reads:>" Over the past three Fed rate cut cycles, gold prices have risen an average of 4% in the six months before the Fed's first rate cut and another 15% in the six months after the first rate cut.>> in the last two interest rate cut cycles (starting in 2007 and 2019), when the relationship between gold and real yields was well established, gold prices have been bullish before the Fed began to cut interest rates (up 8% on average) and in the six months since (up 22% on average)." JPMorgan argues that the asymmetry in the negative correlation between **gold and real yields on U.S. debt goes some way to explaining the elasticity of gold prices since early 2022. * * ## U.S. bond yields are expected to rise for a longer period of time, but there will still be a reversal by mid -2024. In the report, Xiao Mo said that even if the interest rate bitmap released by the Federal Reserve in September is more hawkish, the bank's economists still expect the Federal Reserve's interest rate hike cycle to be over and expect the Federal Reserve to cut interest rates by 50 basis points in 2024 (the interest rate peak will occur in early 2024 and 25 basis points in the summer of 2024). The bank believes that the market may continue to discuss the possibility of the Fed raising interest rates again for the rest of 2023. Therefore, the bank's strategists expect US bond yields to remain high until the end of the year. Still, the bank's strategists predict that this will begin to change in the second half of 2024 as U.S. bond yields begin to fall ahead of the Fed's rate cut cycle. JPMorgan's forecast for the dollar is similar to the view of U.S. bond yields that the dollar's strength is expected to continue until the end of the year and then reach an inflection point in the first half of 2024. ## Xiao Mo Outlook: Gold prices will remain flexible in the short term and will rise sharply afterwards. JPMorgan Chase believes that the real yield of US bonds will rise for a longer period of time, and the US dollar will be supported, which may continue to restrain gold prices. However, it is expected that the Federal Reserve will keep interest rates unchanged. As the negative correlation between gold prices and high yields and a stronger US dollar decreases, gold prices will basically remain flexible in the next quarter:> the price of gold will fluctuate in the recent range of 1880-1950 US dollars/ounce, with an average price of 1920 US dollars/ounce in the fourth quarter of this year. In other words, **with the Fed's rate hike cycle winding down, gold prices are expected to continue to stay where they are until an inflection point later in 2024. The bank expects that as the Fed rate cut cycle approaches, gold prices are expected to eventually move higher, reaching new highs in the second half of 2024 (an average price of $2175/oz in the fourth quarter of 2024) and even higher by 2025, reaching an annual average price of $2250/oz. **The report said:>" Looking ahead to next year, as we expect the Fed to approach and go through a rate cut cycle, we believe this will once again establish lower real yields as a key driver of gold's bullishness, pushing gold prices from remaining resilient to breaking new highs." ## Whether the forecast is accurate or not? Also depends on the US economy and inflation Gold price bullish risk: hard landing of the US economy and faster turning of the Fed As far as the basic forecast is concerned, JPMorgan Chase does not believe that the US economy will experience a recession, but believes that it will grow at a moderate and lower-than-average rate, which will eventually lead to interest rate cuts starting in the third quarter of 2024. However, the bank believes that the risk of a US recession in the coming year is still high, and if the lag effect of tightening policy works faster or more strongly than expected, it may cause a serious impact on the macro market. The bank's global market strategists noted:> "Seven of the past 12 Fed tightening cycles have followed or accompanied recessions. In these seven cycles, the U.S. recession began on average 5-6 months after the Fed's last rate hike.>> if our economists are right, if July marks the Fed's last rate hike, then a time point similar to the historical average will be around the end of this year.>> if the Fed responds more quickly to a further slowdown in the economy, it will add more direct upside risk to our forecast for gold in 2024." Gold price bearish risk: more stubborn inflation calls for further policy tightening The final stages of inflation returning to target levels may be difficult. JPMorgan Chase does not expect the nearly 30% rebound in oil prices since mid-year to be sustained or reflected in core inflation. However, the bank said stubborn core inflation and economic resilience in the United States could prompt the Fed to tighten policy further and extend the debate on ending the tightening cycle until 2024. While Komo still believes that under this scenario, gold prices will not retreat significantly to the lows at the end of 2022, this will continue to steadily depress gold prices, bringing them below the bank's expectations and further delaying any sustained rebound.