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J.P. Morgan predicts gold's journey: Navigating Federal Reserve policy and economic trends

J.P. Morgan predicts gold's journey

The Federal Reserve's decision to reduce interest rates and the diminishing real yields in the United States will once again play a pivotal role in shaping the trajectory of gold prices in 2024.

There is an anticipation that the value of gold will experience a decline in the immediate future, followed by a resurgence and achievement of new highs later in the year. The projected pinnacle is expected to reach around $2300 USD in 2025.

During the latter months of 2023, the prices of gold witnessing an upswing. This upturn was a consequence of central banks engaging in significant gold purchases and an escalating avoidance among investors due to ongoing conflicts in the Israel-Hamas and Russia-Ukraine regions.

Furthermore, the value of the precious metal was boosted by a weakening U.S. dollar and the prevailing expectations of interest rate cuts by the Federal Reserve, reaching a record level of $2,135.39 USD in December.

Following a series of interest rate hikes that elevated the Fed funds rate to its highest point in over 22 years, the Federal Open Market Committee (FOMC) signaled an intention for at least three interest rate cuts in 2024. The question that arises is whether, with gold prices hovering around $2000 USD, another bullish phase for precious metals can be expected as interest rates decline.

Natasha Kaneva, Head of Global Commodity Strategy at J.P. Morgan, asserts, "Tangible goods are not likely to benefit from the core inflation in 2024." According to her, inflation is expected to drop below 3 percent.

With a nuanced understanding of the economic cycle, these conditions are deemed necessary to initiate long positions, making the outlook for the sector highly tactical in 2024. She adds that for all commodities, the only consistent bullish call for the second consecutive year is for gold andsilver.

Gold is often regarded as a safe haven due to its ability to maintain its value in times of economic and geopolitical uncertainty. With a low correlation to other asset classes, gold serves as insurance during market downturns and periods of geopolitical tension. Additionally, a depreciating U.S. dollar and lower interest rates in the USA contribute to the allure of this non-yielding metal.

J.P. Morgan Research estimates that gold prices will peak at $2,300 USD per ounce in 2025. This forecast is based on the assumption that the initial phase of Fed rate cuts will result in reductions of 125 basis points in the second half of 2024, leading to a surge in gold prices to new nominal highs.

Economists from the mentioned company predict that by the second quarter of 2024, U.S. economic growth will decelerate to 0.5 percent quarter over quarter. This expected slowdown is anticipated to prompt the Federal Reserve to commence interest rate cuts in June, ultimately culminating in cuts of 125 basis points in the latter half of the year to avert a recession.


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