JP Morgan, a multinational investment bank and financial services holding company, anticipates a significant rise in gold prices over the next few years.
According to Greg Shearer, the executive director of global commodities research at JP Morgan, gold prices are forecasted to reach around $2,175 an ounce by the fourth quarter of 2024. If this projection proves accurate, it would signify an 11% increase from the present value.
Shearer predicts the termination of the Federal Reserve's interest rate hikes after the meeting in July, with a probable cut by mid-2024. He believes that if the US economy descends into a recession, gold could see even greater gains.
The depth of a potential recession directly impacts the extent to which the Federal Reserve would need to cut interest rates, which generally boosts gold's performance.
Despite stronger-than-expected second-quarter GDP growth and a robust labor market, some economic indicators hint at an impending recession. These include 15 successive drops in the Index of Leading Economic Indicators, an inverted yield curve, and an increasing count of corporate defaults.
Concerns revolve around the Federal Reserve's shift away from easy money policies, which have traditionally served as the economy's lifeblood. The combination of artificially low-interest rates and quantitative easing has supported the US economy in recent years, but withdrawing these measures could lead to severe economic contractions.
This mirrors the events of 2008 when the removal of easy money led to a significant economic decline. Given the higher levels of debt and malinvestments in today's economy compared to 2008, a deeper recession seems more likely.
JP Morgan's mid-year forecast suggests an average gold price of approximately $2,012 an ounce in the latter half of this year. This projection aligns with trends observed in the first half of 2023, during which gold prices increased by 5.4%, making it the second-best performing asset class after developed market stocks.
Shearer noted an increase in net-long positions in gold futures among money managers this year. He anticipates that the augmentation of robust retail demand will be driven by institutional purchases, as central banks persist in their diversification efforts away from the dollar and establish safeguards against geopolitical uncertainties.
The first quarter of 2023 saw an increase in global central bank gold reserves by 228 tons, marking a 38% rise compared to the previous first-quarter record set in 2013.
As per the 2023 Central Bank Gold Reserve Survey by the World Gold Council, 24% of central banks plan to augment their gold reserves in the forthcoming 12 months. Furthermore, 71% anticipate an overall increase in global reserves over the next year.
Investors believe it's a great time to buy gold. Gold has long been acknowledged as a potent hedge against inflation and currency depreciation. As a tangible asset, its value doesn't dwindle in the face of rising costs or falling currency value.
When fiat currencies are under pressure, investors often turn to gold as a safe haven. Its value is recognized globally, and it isn't subject to the whims of government economic policies.
During times of economic turbulence, where inflation may undermine the value of cash holdings, gold's value tends to rise, thus maintaining an investor's purchasing power.
Moreover, investing in gold offers diversification benefits for investors. It's an asset class that's historically moved inversely to stocks and bonds, meaning when the prices of equities and fixed-income investments fall, the price of gold usually rises. This inverse correlation makes it an ideal asset for portfolio diversification.
Gold’s unique trait as a diversifier becomes particularly crucial during periods of economic or market stress, wherein it helps reduce losses and smoothens the returns of the investment portfolio.
Further, the projected demand from central banks and institutional investors underscores the enduring appeal of gold as a cornerstone in investment portfolios, irrespective of the prevailing market conditions.
Will the rise in gold prices alongside potential economic uncertainties help balance global markets, or could it signal a further shift away from traditional currency systems?