JPMorgan Private Bank: Gold Won’t Bottom Until Rate Hikes End, No Support Below $4,000
TREE NEWS reports: Gold prices came under pressure on Wednesday ahead of the Federal Reserve’s rate decision, with the $4,000 per ounce level back in focus. Spot gold fell as much as 0.8% intraday, erasing most of the previous session’s gains. JPMorgan Private Bank warned that gold is unlikely to form a true bottom until interest rates peak, and that there is almost no technical support below $4,000, leaving the market “quite fragile.”
Yuxuan Tang, Head of Asia Rates and FX Strategy at JPMorgan Private Bank, said, “Gold will find a solid bottom when rates peak”—referring to the end of the Fed’s current hiking cycle. Tang noted that thin liquidity and room for further rate increases are the main downside risks for gold.
The Fed is expected to hold rates steady this week, but traders have already priced in the possibility of a rate hike this year, capping upside for gold. Fed Chair Kevin Warsh faces a dilemma—balancing market confidence in the fight against inflation while dealing with persistently high energy prices. Stubbornly high energy prices are the main driver of current inflation, and Thursday’s PCE data will further clarify the inflation trajectory and rate outlook.
Market Implications
The precious metals market is sending a clear message: until the Fed signals the end of its tightening cycle, gold rallies are likely to be sold. The $4,000 level is not just psychological—it is a key technical threshold. With little support below it, a break lower could trigger momentum-driven selling and accelerate declines.
For equities, the pressure on gold reflects a broader risk-off sentiment that has already hit AI-related stocks. Last week, a selloff in AI stocks forced investors to liquidate gold to cover losses elsewhere, pushing gold to its lowest since mid-July. The subsequent rebound in tech stocks has eased some of that pressure, but the correlation underscores how gold is being used as a liquidity source in stress periods.
In bonds, the prospect of further rate hikes keeps yields elevated, increasing the opportunity cost of holding non-yielding gold. The dollar remains firm, another headwind for gold. Commodities are mixed: energy prices remain high, supporting inflation but weighing on growth-sensitive assets.
Cryptocurrencies, often viewed as digital gold, may face similar pressure. With rates expected to stay higher for longer, risk assets including crypto could see continued volatility. However, if gold’s weakness is driven by liquidity needs rather than a change in fundamentals, crypto could benefit once the selling subsides.
Physical demand provides some offset. Chinese households have increased purchases of physical gold over the past two months as prices fell. However, Indian demand is weaker, with families deferring festive-season purchases on expectations of further price declines. This limits the support from physical demand.
OCBC strategist Christopher Wong said in a research note that “near-term risks remain skewed toward further consolidation, but demand-side factors should provide some buffer once selling pressure eases.” He added that for gold to regain sustained upward momentum, multiple conditions need to align: lower oil prices, cooling inflation, a weaker dollar, and falling yields.
Key Takeaways for Investors
- Wait for the Fed’s peak rate signal: Gold’s true bottom likely won’t form until the Fed signals the end of its hiking cycle. Until then, rallies may be sold.
- Watch the $4,000 level: A sustained break below $4,000 could trigger further selling due to lack of technical support.
- Monitor PCE and energy prices: Thursday’s PCE data and energy price trends are key for inflation and rate expectations.
- Physical demand is a cushion, not a catalyst: Chinese buying offers some support, but Indian demand is weak. A sustained rebound needs broader macro tailwinds.
- Diversify and manage risk: With gold fragile, investors should consider portfolio diversification and avoid overexposure to any single asset class.
