JPMorgan Chase, a leading global financial services firm with over $2.6 trillion in assets, forecasts continual gold and silver price gains as the Federal Reserve approaches the end of its rate-hiking cycle and the impending recession looms in everyone’s minds. With expectations of rate cuts by next year, the financial firm predicts gold prices will reach record highs within the next 12 to 18 months.
Greg Shearer, the executive director of global commodities research at JPMorgan Chase, revealed in a recent research note that he believes the Federal Reserve will begin cutting interest rates by 2024’s second quarter. With this estimate, Shearer forecasts that dropping U.S. yields will become a “significant driver” in gold’s gains.
The mid-year forecast released by JPMorgan Chase placed average gold prices for the second half of 2023 at $2,012 per ounce. For reference, the precious metal started the year at $1,824.16 per ounce, hit a high of $2,053.13 following the collapse of SVB Financial, and currently sits at an average of $1,936.15 per ounce with a 6.75% year-to-date gain. Gold futures closed this past Wednesday at $2,009.50 per ounce.
Moving into 2024, as the rate-hiking cycle settles, according to JPMorgan Chase predictions, Shearer expects to see an average of $2,175 per ounce for the fourth quarter of the year from gold. If the U.S. actually falls into a recessionary period, he would push this average up a bit, though it’s too soon to bet on that scenario.
Shearer explained that a deep recession would likely result in extreme interest rate cuts, which would offer an excellent environment for gold prices to thrive. For example, between November 2007 and June 2009, during the height of the Great Recession, gold prices spiked by 19.27%. The same thing happened from 1979 to 1980 and 1973 to 1975, with prices increasing by 19.97% and 81.8%, respectively.
“A more positive gold environment would result from a more pronounced economic downturn, thanks to an accompanying increase in volatility and risk-off appetite,” the World Gold Council explained in a recent report outlining mid-year forecasts.
A soft economic landing following the Fed’s latest policy updates may result in more mild performances from gold, though a hard landing, as many are predicting, could boost gold prices beyond expectations. Recessionary periods boost inflation-hedging buying, safe-haven buying, and risk-aversion buying, all of which make gold a more attractive asset.
“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,” Shearer explained.
Shearer’s comments came just before the Federal Reserve’s latest decision to hike interest rates by 25 basis points, as expected. With this unanimous decision came comments surrounding future rate hikes. The committee now plans to assess the economy on a month-by-month basis before deciding on future hikes or pauses.
Current marketplace estimates are placing a tied stance on whether the central bank will maintain its current rate or increase moving into later months this year. Chairman Jerome Powell’s remarks regarding the topic offered little-to-no clarity.
“I would say it’s certainly possible that we will raise funds again at the September meeting if the data warranted,” Chairman Jerome Powell stated. “And I would also say it’s possible that we would choose to hold steady, and we’re going to be making careful assessments, as I said, meeting by meeting.”
With both scenarios being “possible,” all traders can do now is keep an eye on economic data to guess how the Federal Reserve may respond. Analysts currently believe that gold prices will remain a bit volatile in the short term in response to Federal Reserve policies.
Looking beyond upcoming monetary policies, Shearer believes gold maintains solid demand levels from numerous sectors that should continue supporting the precious metal as we progress into 2024. JPMorgan Chase believes one critical sector, central banks, will continue investing in the precious metal moving forward as a way to diversify reserves, move away from the U.S. dollar, and hedge against geopolitical risks.
“There’s an eagerness here to really buy in and diversify allocation away from currencies,” Shearer explained.
Whether Shearer’s predictions will come to fruition is not yet confirmed, although many analysts seem to agree on the overall sentiment of gold’s future. As always, investors should consult their financial advisors before making any portfolio decisions.