Is gold at $4,600 expensive or not?
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After an astonishing five-year bull market, gold hit a peak of about $5,400 in January 2026 and has now pulled back to around $4,600 amid the Iran conflict. JPMorgan believes $4,600 gold is expensively justified, but the real buyers have not arrived yet.
On May 7, according to the Chase Trading Desk, JPMorgan's Asia-Pacific Research Team released its latest report after meeting with World Gold Council (WGC) Chief Market Strategist John Reade. The key conclusion is straightforward: Gold is expensive by any quantitative model, but that does not mean it is wrong.
According to historical models, gold's fair value should be between $1,000 and $1,900, and today's price is at the highest premium level since 1971. However, expensive does not mean wrong. This surge (+188% dollar return over 5 years) was entirely driven by Asian physical demand and emerging market central banks (especially covert buying by China), while Western institutional investors were net sellers in recent years.
Recently, gold may continue to consolidate near $4,600, with further downside risk from momentum unwinding. But there are real and underestimated medium-term catalysts. JPMorgan believes, $4,600 gold is expensive insurance. But considering the risks it hedges against, this premium may be worth paying.
The bank believes that the next structural driver of gold prices—the “century reallocation” by Western pension and insurance funds from failed 60/40 stock-bond portfolios into gold, and the market's repricing of “stagflation”—has yet to really begin.
Models have completely failed: Expensive, but not necessarily wrong
To understand gold's current pricing logic, you must first face one fact: All traditional models point in one direction—gold is extremely overvalued.
The WGC's GLTER framework estimates gold's long-term return as U.S. CPI plus 2-3%, giving a fair value of about $1,900. The twenty-year stable relationship between gold and U.S. real yields (2001-2021) broke down completely in 2021—if that relationship still held, gold would be priced at about $1,000 today, not $4,600.
So, what are investors actually paying for?
JPMorgan agrees with WGC's framework: The current premium reflects two things.
First, the insurance premium. With the Fed's independence openly questioned, fiscal deficits at peacetime records, Middle East military conflict affecting energy markets, and emerging market central banks accelerating de-dollarization, gold's high premium is a rational pricing for an unusually unstable environment. As long as instability persists, the premium will persist.
Second, the models themselves have failed. Over the past thirty years, government bonds hedged the equity portfolio. This assumption is collapsing. When stocks and bonds turn positively correlated during crises—falling together instead of hedging—gold's value as an alternative diversifier turns structural, not merely tactical. The 60/40 portfolio is increasingly viewed by large allocators as obsolete, and gold is the logical beneficiary.
This is the most underrated core insight: Gold currently makes up only about 2% of global investable portfolios. Decades of WGC portfolio studies agree: The optimal risk-adjusted allocation is 5%-10%.
JPMorgan cites some scale: Total global pension and insurance assets are about $80 trillion. If average gold allocation rises from 2% to 3%, just that 1 percentage point reallocation would require about 5,000 tons of incremental demand—while annual global gold supply is about 4,500 tons. This reallocation has not yet begun.
A bull market built by Asia, with the West still absent
The report highlights this as the most counterintuitive fact in the gold market: From 2021-2024, Western institutional investors were net sellers via ETFs—even as gold prices doubled.
In 2025, global ETF inflows turned positive, netting about 800 tons. But this buying came late, was mainly momentum-driven rather than conviction-driven, and was partially reversed in subsequent pullbacks.
The true drivers of this bull market were a different group of buyers:
Physical bar and coin demand (mainly from Asian individual investors), now at about 1,500 tons a year, far above the historical average of 1,000 tons, is the most lasting and stable demand component;China and India together account for about half of global gold demand; China has shifted from jewelry-driven (pre-2020, about 75% of demand) to investment demand exceeding jewelry consumption;Emerging market central bank gold buying: From 2021-2025, central bank gold buying averaged about 225 tons per quarter—twice the rate from 2016-2020.
JPMorgan says central bank gold buying is an important demand driver, but official figures seriously underestimate the true scale. An increasing portion of central bank gold buying is unreported to the IMF and classified as “undisclosed” purchases.
In Q1 2026, reported central bank demand was weak, but WGC and Metals Focus estimate official sector total buying at about 245 tons—implying a large number of undisclosed buyers.
At the same time, JPMorgan believes reallocation from bonds to gold by Western pensions, insurance companies, and real money portfolios will be the engine for the next structural rally. This process has not yet started on a large scale.
Two new categories of buyers ignored by mainstream models
JPMorgan considers there are now two emerging sources of gold demand, uncaptured by any standard supply-demand framework, both hidden under "OTC and other" residual categories analysts use when figures don't reconcile.
- Chinese insurance companies
In early 2025, the top ten Chinese insurers gained regulatory approval to allocate up to 1% of their assets under management to physical gold. At the time, 1% AUM equaled about 200 tons of gold. These institutions did some experimental trades in 2025, but largely stayed on the sidelines, waiting for a satisfactory price correction—which never came. Buying began in 2026, but remains well below the approved quota.
The significance is:
The 1% cap is almost certainly just the starting point. 5% allocation would multiply demand by an order of magnitude; and as these institutions begin to report their holdings, this demand will shift from OTC residuals into visible investment demand, likely triggering a market repricing of demand data.
- Tether
Tether is the issuer of the world's largest USD stablecoin, USDT, with a market cap of about $200 billion, and one of the world's biggest non-sovereign holders of U.S. Treasuries.
In 2025, Tether purchased about 100 tons of gold as reserves to back USDT (not their smaller gold-backed stablecoin product). Tether management publicly stated that the dollar has structural flaws and views gold as a more durable reserve asset.
In a 4,500 ton annual market, buying 100 tons in a single year is a sizeable new buyer. This demand, too, is hidden in OTC residuals, invisible to consensus models.
Next catalysts: Stagflation trades and the “century reallocation” by Western institutions
JPMorgan states, if Asia has built gold's price floor, future upside will be decided by the West.
First is the stagflation trade. Middle East conflict points to higher inflation and lower growth—the macro environment in which gold performs best. At present, investors are not fully positioned for this. The signal to watch is:
When the rolling correlation between gold and equities turns persistently negative again (stocks down, gold up), the stagflation trade is officially on.
Meanwhile, in 2026, Comex net managed money positions contracted sharply, even with gold still near historic highs, indicating this rally is driven by structural buyers, not tactical capital. Western momentum traders have not yet built positions for the stagflation trade.
The second catalyst is structural Western institutional reallocation. Currently, gold is just about 2% of global investable asset portfolios, but WGC research shows the optimal risk-adjusted allocation should be 5-10%. With global pension and insurance assets totaling about $80 trillion, just raising average gold allocation from 2% to 3% demands approximately 5,000 tons of incremental demand—which exceeds the entire world’s annual gold supply (about 4,500 tons). Such large-scale reallocation has not yet begun.
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The above highlights are from Chase Trading Desk.
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