Why J.P. Morgan Remains Bullish on Gold



J.P. Morgan: $1,400 gold

While J.P. Morgan (JPM) lowered its price forecasts for gold, it remains bullish on the metal. It believes that gold prices could leave their tight trading ranges behind and march toward $1,400 per ounce by the third quarter. 

As reported by Kitco, JPM economists noted, “Our overall macro view remains largely unchanged and we still remain bullish on copper, gold and silver.”

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Change in forecasts

J.P. Morgan downgraded its price forecasts by 4.0% for 2018 and 2019. It changed its gold price (GLD) estimate from $1,408 per ounce to $1,355 per ounce in 2018 and from $1,475 per ounce to $1,412 per ounce in 2019. These downgrades were implemented with a view on the US dollar’s bullishness. 

The US dollar has gained 4.3% year-to-date. A stronger dollar is negative for the assets denominated in it, including gold. The US dollar has been the most important factor driving gold price’s weakness in 2018.

JPM: Gold price driver

While talking about the dollar (UUP)(USDU) as the driver for gold prices, JPM analysts told Kitco, “While supply-demand fundamentals and historical late-cycle dynamics point to higher prices for gold … in the quarters ahead, we acknowledge that as long as the USD continues its recent bullish run, metals prices will generally be hard pressed to break out higher from current levels.”

JPM also believes that its fundamental view of weakness in the dollar is syncing with its technical view for a medium-term setback to the dollar, which could be beneficial for precious metals.

A positive return for gold prices could impact gold miners in a big way, as miners are a leveraged play on gold that could magnify gold’s gains or losses. Last year was an outlier in this context—gold prices rose 13.0%, and the gold miners index gained 11.1%. Miners (GDX)(GDXJ) such as Eldorado Gold (EGO), Tahoe Resources (TAHO), Barrick Gold (ABX), and Goldcorp (GG) reported negative returns.


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