(Kitco News) – Even with gold trading on the edge of $4,300 per ounce, supportive supply and demand dynamics mean there’s still plenty of upside left for investors, but they need to be clear on why they’re taking the positions, according to Marcella Chow, Market Strategist at JP Morgan Asset Management.
Chow was asked by CNBC on Thursday if gold is still worth buying with prices above $4,200 per ounce. Her answer was an emphatic yes.
“If we look at the demand and supply dynamics, we see supportive fundamentals from the demand side,” she said. “We start with the rate-cut cycle continuing, and then a weaker U.S. dollar as our medium to long-term view. And then we also see continuous demand from central banks, from emerging market consumers, particularly within China and India. So on the demand side, we see supportive fundamentals.”
Chow said the supply side of the equation should also support further price gains.
“The supply is quite finite because of these mining [supply] constraints,” she said. “We do not see the supply growing quite fast as, for example, the money supply, or government debt, et cetera.”
“So in terms of dynamics between demand and supply, this indeed suggests that gold still has a way to go.”
She warned, however, that there are other problems surrounding the gold market that investors must take into account.
“For example, gold does not actually generate income, and also in terms of volatility, it’s actually way higher than that of, for example, fixed income, which we should include in our portfolio to build resilience,” Chow said. “And a lot of investors treat gold as a hedge against asset classes, but there hasn't been a very clear negative correlation between gold and equities, for example.”
“We do think it’s wise to add gold to your portfolio construction, but more in terms of diversification, and also all these fundamentals being quite supportive,” she added, “but not as a hedge against market volatility, or protection against market volatility.”
On Oct. 14, JPMorgan CEO Jamie Dimon said it now makes sense for investors to eat the opportunity cost and hold gold in their portfolios, as the precious metal could easily double in price from its current all-time highs.
Dimon is by no means a gold bull, so admitting that there is “some logic” in owning it even after its massive price rally was a major concession for him.
“I’m not a gold buyer — it costs 4% to own it,” he told Fortune’s Most Powerful Women conference in Washington on Tuesday. “But it could easily go to $5,000 or $10,000 in environments like this.”
“This is one of the few times in my life it’s semi-rational to have some in your portfolio.”
Dimon added that asset prices look stretched across the board right now, with valuations “kind of high across almost everything at this point.”
And in May, Grace Peters, global head of investment strategy at JPMorgan, said that while both European and U.S. equities should perform well in 2025, gold is still set to outperform.
“The notion that growth is going to be positive, corporate earnings will be positive, the Fed will cut a bit, but not extensively, is the backdrop that we see, is what leads us to this notion of geographic diversification, still being pro-risk here, but in an intentionally diversified way,” she said.
When asked how JP Morgan is looking at gold in this environment, Peters said, “We still like it.”
“There's a few different things we're trying to solve for,” she explained. “U.S. overweight positions is one, so diversifying by geography and by currency is one of the elements, but also just broader geographic hedging. And there's definitely been a way over the last couple of years as to how gold has traded, and we think that those structural changes are likely to keep playing out.”
“We came into this year with a price target for gold of $3,500,” Peters said. “We've just broken through that [in late April]. So again, looking 12 months forward, north of $4,000, we think, would be a new reasonable price target for gold, with key drivers being still emerging market central banks. When you look at EM positions versus DM central banks, there's quite a lot of room still for EM central banks to position closer to where their DM counterparts are, and also retail ETF buying.”
She added that with the expectation of GDP being positive, JP Morgan expects that demand for gold from jewelry and the tech sector should also be resilient and could grow over the next 12 months.
Gold is continuing its epic recent run on Thursday, with the yellow metal’s spot price hitting a new all-time high of $4,298.72 at 1:37 pm EDT.
Spot gold last traded at $4,279.73 for a gain of 1.71% on the daily chart.
