Global Commodities: Gold is back to Fed-watching

Hello, and welcome to another episode of At Any Rate. I'm Greg Scheer, your host for today, and I head up Basin Precious Metals Research at J.P. Morgan.

There are several interesting stories happening in the commodities markets this week. Probably one of the most important and noteworthy is in oil, where benchmark crude prices have returned back to pre-war levels. For the end of June, exports from the Strait of Hormuz are running at about 60% of normalized levels, up from 16% in May, suggesting a very strong rebound.

However, at the same time as this surge in supply, it's colliding with a market that simply does not need that much oil. Petrochemical plants take time to ramp up. Some airlines have already locked in trim schedules, while relatively stickier gasoline prices are weighing on the One notable player has also largely been absent from the market, and that is China, which has effectively subsidized the rest of the world by absorbing about a third of the global adjustment to this shock.

Moving to other markets, another commodity that's been in focus in the last week has been gold, as it's defended a pretty psychological level of around $4,000 per ounce. Our previous view on gold from May was really tied to the view on the Strait of Hormuz and energy prices. What we were expecting from that perspective was a reopening of the Strait of Hormuz, a backup in energy prices, and unwinding these inflationary tail risks would be the necessary catalyst to restoke some of this investor demanding gold necessary to turn around its fall towards $4,000 and really reaccelerate its long-term trend.

While we initially got a bit of enthusiasm come through after the signing of the Memorandum of Understanding, that ran into the buzzsaw of a much more unequivocally hawkish first Fed meeting under Chair Warsh. And that has really for now severed the connection between energy prices and this rate story. And what we ultimately have seen is gold is trading on the rate story for now.

Ultimately, this shift towards rate sensitivity has led us to reassess our demand forecast as we look forward. We still do expect a modest recovery over the second half of 2026, and I'll walk you through why. But as you'll see, until we get a more material dovish shift in the Fed's bias, we ultimately think you are somewhat capped at a lower range here in gold than we were expecting previously.

And we now see gold prices averaging something around $4,300 in the third quarter of 2026 and around $4,500 in the fourth quarter of 2026. Down from previous forecasts that had us pushing closer towards around $6,000 per ounce. I think the most interesting place to start on this gold story is this shift and re-correlation back to real yields.

That's where we've been getting a lot of incoming questions on trying to understand the dynamics after we significantly de-correlated from real yields over the course of 2022, 23, and even into 24 and 25. And I think where to start there is really understanding what drives gold. At an overall market level, we think it's investor and central bank demand versus price.

That is the long-term regression that's really held in what we base our price forecast on. Pre-2022, the marginal flow in gold was predominantly ETF holdings and futures positioning. Those are two rate-sensitive sectors of demand.

And outside of that, you had pretty steady central bank demand, you had pretty steady retail bar and coin demand. So the fluctuations in ETF holdings and futures positioning was really the large determinant in terms of that push in demand and then obviously prices. Come 2022, what's really interesting is actually that ETF holdings and futures positioning actually does what we would expect over the rates hiking cycle.

We see outflows, we see de-leveraging. The interesting dynamic is you get this very strong structural uplift from other demand sectors. First, it was central banks.

That goes into a story of a larger debasement trade where you get a retail overlay of this demand trend in gold. And that really takes away the marginal pricing power from those rate-sensitive ETF holdings and ultimately leads to this de-correlation up until we get to March. From there, we've now re-synced with real yields.

And the most important kind of dynamic with that is really that, in our views, a reflection of some of the anemia that we're seeing in other demand sectors that has refocused the marginal pricing power back to outflows from ETFs. Ultimately, what this means is we think in gold is under a period of Fed watching once again. This leads us to the outlook over the second half of 2026.

And we think it's going to be largely rate-dependent. Ultimately, we do have a patient Fed. When we look at the base case from JPMorgan Economics, they do not have a Fed hiking over the second half of 2026.

That's somewhat different than what we see in terms of the OIS rates markets, which are pricing in something at the moment of around 30 basis points priced in in terms of Fed hikes through the end of December. What this ultimately means here is that this less aggressive Fed, in our view, does deliver some more solid footing for gold. But the upside is capped until we get a much more materially dovish pivot.

The issue for gold is that even if the Fed doesn't hike in line with current market pricing, the upward slope of the OIS curve, i.e. the price, the market is pricing in the next move by the Fed as a hike, is likely to be much stickier given the recent communications and dot shifts in terms of what we've seen from the Fed more intent on tackling inflation. What this ultimately drives here is that while you could begin to get some sort of recovery if we get some softer data coming in that opens up a bit more of a dovish stance going forward, you still are likely ultimately capped by this Fed hawkish bias. When we look forward, what that really means in our view is that you are probably in a more range bound environment back towards around 4500 by the fourth quarter of 26.

So we do get some recovery as ultimately we think the Fed remains on hold. But what we're really waiting for, for gold to kind of continue its longer term structural uptrend, is probably something that where data weakness, whether that's through employment and or inflation coming in cooler than expected, opens the window for a much more materially dovish pivot by the Fed being priced in. And at the moment, that is still very much a waiting game dependent on every month's incoming data on that point.

So where does this leave us for gold over the longer term? Well, from our perspective, we still do remain quite bullish on a long term basis for gold. We think what you're seeing now is that this Fed expectations of hikes is largely a freeze to some of these other demand segments.

But when we think longer term, the story on central bank buying, we don't think is done. Ultimately, we think what you're seeing right now is a bit more cautious stance from central banks as they begin to unpack and unwind from that defensive stance they took over the US Iran conflict, given the risks to inflation, their currencies, and even the potential to have to kind of subsidize energy. We think that will unwind.

We think central bank demand will strengthen into the back of this year and remain elevated as we look to 2027. We also think that retail demand, whether that's from India or China, does still have a path to growth over the balance of this year, which does remain supportive. But ultimately, we're looking for that window opening of a more materially dovish pivot as opening up the upside here for gold to regain the same momentum that we saw over the course of 2025.

Well, that's it for today. Thank you for tuning in to this commodities edition of JPMorgan's At Any Rate podcast. We look forward to continuing the conversation next week.

This communication is provided for information purposes only. Please refer to JPMorgan research reports related to its content for more information, including important disclosures. 2026 JPMorgan Chase & Company All Rights Reserved. This episode was recorded on July 2, 2026.