Gold is now again watching the Federal Reserve’s moves.
The logic of the gold market is undergoing a significant "reversion." The latest research from JPMorgan reveals a harsh market reality: the pricing power of gold has returned to the hands of the Federal Reserve.
On July 4, according to Chasing Wind Trading Desk, JPMorgan pointed out in its latest precious metals research report that, as buying strength in other demand sectors has cooled comprehensively, rate-sensitive gold ETF fund flows have regained the marginal pricing power for gold—gold prices and U.S. real interest rates have resumed their strong negative correlation after years of dormancy. This means that the rise and fall of gold once again hinges on a core variable: the Federal Reserve's next move.
JPMorgan has lowered its average gold price forecast for Q3 to $4,300/oz and for Q4 to $4,500/oz, representing a sharp reduction of 20%-25% compared to previous expectations. This signals the end of the "no-brainer bullish" stage, previously driven by safe-haven demand and central bank buying.
Although gold prices have technically rebounded from the $4,000/oz level, the bank clearly pointed out that short-term risks remain tilted downward—if summer economic data runs unexpectedly hot and the Fed is forced to hike rates early, gold could fall below $4,000, triggering technical selling and testing the $3,500-$3,600 range.
Meanwhile, JPMorgan maintains its long-term bullish stance on gold, expecting that in 2027, with central bank buying and physical demand structurally returning, gold prices will resume their upward trajectory, with the annual average likely to rise to $4,775/oz.
For other precious metals, silver is undergoing a fundamental shift from “tight supply” to “balance,” with the gold-silver ratio expected to further move towards 70-75; silver prices are expected to fluctuate between $62-$65/oz. Platinum, near $1,600/oz, is approaching the critical incentive price for South African suppliers and is projected to rebound with gold, reaching $1,800 by year-end and $1,950 by end-2027. Palladium remains pressured by EV-driven demand erosion, expected to rebound to $1,350 by year-end but average at about $1,300 in 2027.
ETF Fund Flows Regain Pricing Power: Gold and Real Interest Rates Re-"Bind"
To understand the core of the current gold market, one must first clarify a piece of history.
Before 2022, gold prices were highly negatively correlated to U.S. real interest rates—when real rates rose, the opportunity cost of holding non-yielding gold increased and ETF holders and futures investors tended to reduce holdings. This logic was simple, stable, and dominated the market for more than a decade.
After 2022, this relationship was broken. In the Fed’s aggressive rate hike cycle, ETF holdings saw significant outflows, but explosive growth in central bank gold buying not only made up for this gap but also liberated gold from “the bondage” of real interest rates. Subsequently, with the onset of the 2025 “currency depreciation trade,” fast expansion in physical retail demand, Asian ETF holdings, and momentum-driven funds collectively pushed gold prices to historic highs.
However, since March 2026, this situation has reversed again. The initial deleveraging triggered by U.S.-Iranian conflicts, coupled with the new Fed Chair Walsh’s strong hawkish signals, caused other demand sectors to stall:
India: To protect external accounts, the government raised import duties and tightened restrictions, causing physical demand to shrink sharply;China: Domestic gold premiums remain subdued, reflecting weak retail demand;Central Banks: Although net buying resumed in April and May, the momentum has obviously become cautious;Retail Investors: After Walsh reaffirmed commitment to fighting inflation, the “depreciation trade” narrative cooled and funds chased new themes like AI chips.
The comprehensive lull in demand sectors left rate-sensitive ETF flows as the only active marginal force. Since late February, global gold ETF net outflows have totaled about 128 tons (down about 3%), matching the historical correlation with a rise in U.S. 10-year real interest rates by about 50 basis points.
However, the price drop far exceeds what can be explained by the ETF outflows alone—gold’s sensitivity to real interest rates is even more pronounced than under the old pre-2022 regime: for every 1 basis point rise in real rates, gold drops about $20, with total declines exceeding 20%.
JPMorgan believes this “over-sensitivity” reflects the extreme sluggishness in other demand sectors—their absence amplifies the impact of real interest rates and squeezes the support base for gold prices.
Fed Path: Patience is Golden, but Upside Limited
JPMorgan's baseline forecast: The Fed will stay on hold this year, with the first rate hike delayed to Q3 2027. However, market pricing is ahead—OIS forward markets have almost fully priced in a hike this year and expect a cumulative 40 basis points hike by April 2027, which is earlier and more aggressive than JPMorgan’s baseline.
Even if the Fed ultimately remains patient as JPMorgan anticipates, there’s still an issue: the upward slope of the OIS curve (i.e., market pricing the next move as a hike) will be sticky. This is because the U.S. labor market shows strong momentum, the new Chair Walsh is tougher on inflation, and the 10-year Treasury yield is still over 20 basis points below model-implied fair value—indicating mid-term rate upside.
Against this backdrop, unless jobs or inflation data weaken clearly, the market will keep advancing the Fed rate hike timeline rather than easing hawkish expectations. This continuously rising OIS curve acts like a cap, suppressing ETF holdings recovery and wider investor demand for gold.
Based on the latest real rate forecasts, JPMorgan has revised its 2026 global ETF flow forecast from net inflow of about 400 tons to net outflow of about 50 tons (as of June 26, year-to-date still records net inflow of about 19 tons).
Short-term Downside Risk Is Significant, Long-term Logic Is Intact
For the short-term trend, JPMorgan points out clearly that risks are tipped toward the downside, mainly from two paths:
- Path 1: Fed forced to hike early.
JPMorgan’s rate strategists believe the 1999-2000 hiking cycle is the closest historical parallel, with the Fed then raising rates by approximately 50-100 basis points. If the market prices toward this scenario, mid-term Treasury yields may rise by another 50 basis points and gold is very likely to fall below $4,000/oz, triggering technical sell-offs and targeting the $3,500-$3,600 range.
- Path 2: Dollar Surges Unexpectedly.
JPMorgan's FX strategists believe the "America exceptionalism" narrative is re-emerging. Key risks are that if AI is used more broadly as a geopolitical lever, the growth gap between the U.S. and other economies would widen further, pushing the dollar to even stronger performance and exerting additional pressure on dollar-denominated gold.
Despite a conservative near-term outlook, JPMorgan has not abandoned its long-term bullish stance on gold. The report stresses the “depreciation trade” is not dead, just temporarily overshadowed by hawkish monetary policy narrative.
Two structural forces supporting the long-term bullish case remain:
Central bank gold buying: Net purchases have resumed in April and May, Chinese gold import data remains robust (even with domestic retail demand weak, official accumulation continues). JPMorgan tweaks its 2026 global central bank net gold buying forecast from 640 tons down slightly to 600 tons, but the logic of long-term strategic accumulation remains intact.Physical demand’s return: Once India lifts import restrictions, compensatory demand will be released; cyclical recovery in Asian physical demand will also support gold prices.
JPMorgan expects, as these structural forces regain strength in 2027, gold prices will rise quarter by quarter: Q1 $4,600, Q2 $4,700, Q3 $4,800, Q4 $5,000, with the annual average around $4,775/oz. But this recovery path depends on the Fed making a truly dovish shift—this is a necessary condition for reigniting gold’s upside momentum.
Silver: From "Scarcity Premium" to "Supply-Demand Rebalance"
Silver is undergoing a profound fundamental transition. Last year, extreme tightness in the physical market led silver to greatly outperform gold; this year, the logic is reversing.
JPMorgan expects demand for silver in solar panels will fall by about 30% in 2026, equivalent to a reduction of 60 million oz. This means after five consecutive years of supply deficit, the silver market (excluding inventory and ETF flows) will reach balance this year, and possibly a slight surplus in 2027.
The shift in supply-demand directly impacts silver’s volatility relative to gold: On days when gold falls, silver’s decline will be even more pronounced—opposite last year’s "gold up, silver up more" asymmetric logic.
Thus, JPMorgan expects the gold-silver ratio will move further toward 70 (second half of 2026) and 75 (2027), silver prices will fluctuate between $62-$65/oz, with average prices of about $70.6 in 2026 and about $63.9 in 2027.
Platinum and Palladium: Following Gold in the Downtrend, Awaiting Signs of Stabilization
Platinum and palladium have also suffered from massive ETF sell-offs, with the metals continuously supplied to the physical market, prices falling in sync with gold.
Platinum: Current prices around $1,600/oz are near the "fundamental incentive price" recognized by JPMorgan—below this level, South African miners' necessary supply investment faces shelving risks, which could trigger more severe and lasting supply tightness.
JPMorgan expects, as gold stabilizes in late 2026, platinum will find firmer support, with year-end average prices returning to $1,800, and further rising to $1,950 by the end of 2027.
Palladium: The rise in EV penetration continues to shift the supply-demand balance into significant surplus. JPMorgan believes the platinum-palladium price gap needs to widen further to accelerate substitution and support palladium demand. Palladium is forecast to rebound to $1,350 by year-end, but the average for 2027 remains limited, staying at around $1,300.
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