Global Commodities: Gold is back to Fed-watching
Lead — J.P. Morgan's latest research highlights a renewed focus on gold amid changing sentiment in the markets, particularly following a hawkish FOMC stance that has altered the dynamics between energy prices and interest rates. Per the full note, this shift necessitates a reassessment of fundamental demand channels for gold, especially as recent optimism may be waning. With gold's performance increasingly tied to macroeconomic indicators and central bank policy, positioning shifts among institutional traders could drive volatility in the commodity space in the near term. The upcoming economic landscape will likely influence market sentiment more than conventional energy price correlations.
What the desk is arguing
The desk frames this as a pivotal moment for gold, suggesting that recent hawkish rhetoric from the Federal Reserve is beginning to overshadow traditional correlations with oil prices. This indicates a shift in focus for traders who are now recalibrating their strategies based on potential shifts in U.S. monetary policy and economic data releases.
Supporting evidence from J.P. Morgan includes the acknowledgment that the close ties between energy prices and interest rates have been severed, suggesting a decoupling that warrants a fresh look at gold’s demand drivers. The commentary indicates that these changes could lead to more pronounced movements in gold as traders respond to the evolving economic narrative.
Where it sits in our coverage
J.P. Morgan's view aligns closely with the broader market sentiment, especially as jpmorgan holds a target of $1,100 for gold by March 2026, suggesting a constructive outlook. On the contrary, bofa is taking a more bearish stance with a lower target of $1,040 for the same timeframe, indicating a clearer divergence in expectations among market participants.
How other firms see it
Firm views are split, with jpmorgan and a few others supporting the bullish outlook for gold, citing the need to reassess demand as central banks navigate through uncertain waters. Conversely, firms like bofa express caution, arguing for a potential drop in gold prices if macroeconomic conditions do not favor inflationary measures. Tracking USD in relation to precious metals will be essential, particularly as shifts in Fed policy will likely influence both commodity prices and currency valuations.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Gold's recovery narrative is strengthening amidst shifting market dynamics.
- 02Recent FOMC decisions have altered the correlation between energy prices and gold.
- 03Institutional positioning is shifting, which may increase volatility in gold.
- 04Watch for macroeconomic indicators influencing gold's performance moving forward.
Market implications
Traders should closely monitor $1,100 as a key level for gold, which could serve as a psychological barrier in the short term. A failure to hold this level may trigger further selling pressure among institutions. Additionally, keep an eye on any upcoming economic data that could sway Fed sentiment and, consequently, gold prices.
Risks to this view
A pivot toward a more dovish stance by the Federal Reserve could rapidly reverse recent gains in gold, particularly if accompanying economic data shows signs of growth or stability. Additionally, a resurgence in risk appetite among investors might redirect flows away from gold and towards equities.
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.
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