Gold is now once again at the mercy of the Fed.

The logic of the gold market is undergoing a notable "return." JPMorgan's latest research reveals a cold market reality: the pricing power of gold has returned to the hands of the Federal Reserve.

On July 4, according to the Chase Trading Desk, JPMorgan noted in its latest precious metals research report that as buying momentum from other demand segments has fully cooled, interest rate-sensitive gold ETF flows have regained marginal pricing power over gold prices—the negative correlation between gold prices and U.S. real interest rates has made a strong comeback after years of dormancy. This means that gold's rise and fall once again depend on a core variable: the Fed's next move.

JPMorgan has lowered its average gold price forecast for the third quarter to $4,300 per ounce, and $4,500 per ounce for the fourth quarter, a sharp reduction of 20% to 25% from previous expectations. This indicates that the earlier phase of "blind bullishness" driven by safe-haven buying and central bank purchases has ended.

Although gold prices have technically rebounded from the $4,000 per ounce level, the bank clearly states that near-term risks remain tilted to the downside—if summer economic data comes in hotter than expected, forcing the Fed to raise interest rates prematurely, gold prices could break below $4,000, triggering technical selling and falling to the $3,500 to $3,600 range.

At the same time, JPMorgan maintains its long-term bullish stance on gold, expecting that with the structural return of central bank gold purchases and physical demand in 2027, gold prices will resume their upward trend, with the full-year average price expected to reach $4,775 per ounce.

In other precious metals, silver is undergoing a fundamental shift from "supply tightness" to "moving toward balance," with the gold-to-silver ratio expected to narrow further toward 70 to 75, and silver prices likely to trade in the $62 to $65 per ounce range; platinum, at around $1,600 per ounce, has reached a key incentive price for South African supply, and is expected to rise along with gold stability to $1,800 by year-end and $1,950 by end-2027; palladium continues to face pressure from electric vehicle demand erosion, and is expected to recover to $1,350 by year-end, but maintain an average of around $1,300 for the full year 2027.

ETF Flows Regain Pricing Power: Gold and Real Interest Rates "Re-linked"

To understand the core of the current gold market, one must first clarify a piece of history.

Before 2022, gold prices had a strong negative correlation with U.S. real interest rates—when real interest rates rose, the opportunity cost of holding non-yielding gold increased, prompting ETF holders and futures investors to reduce positions. This logic was simple, stable, and dominated the market for over a decade.

After 2022, this relationship was broken. During the Fed's aggressive rate hike cycle, ETF holdings saw significant outflows, but the explosive growth in central bank gold demand not only filled that gap but also freed gold from the "shackles" of real interest rates. Subsequently, with the rise of the "currency debasement trade" in 2025, surging retail physical demand, rapid expansion of Asian ETF holdings, and momentum-driven capital inflows, gold prices were pushed to historical highs.

However, since March 2026, this pattern has reversed again. The initial de-leveraging triggered by the U.S.-Iran conflict, combined with the strong hawkish signals from new Fed Chair Warsh, caused other demand segments to collectively "fizzle out":

• India: To protect its external account, the government raised import tariffs and tightened import restrictions, leading to a sharp contraction in physical demand.

• China: Domestic gold premiums remain low, reflecting weak retail demand.

• Central Banks: Although net purchases resumed in April and May, the intensity has notably become more cautious.

• Retail Investors: After Warsh reaffirmed his commitment to fighting inflation, the "debasement trade" narrative cooled, and funds shifted to chasing new themes like AI chips.

The complete quieting of demand has made interest rate-sensitive ETF flows the only active marginal force. Since late February, global gold ETFs have seen net outflows of approximately 128 tons (a decline of about 3%), which is roughly consistent with the historical relationship corresponding to a 50 basis point rise in the U.S. 10-year real yield.

But the actual price decline has far exceeded what ETF outflows alone can explain—gold's sensitivity to real interest rates is even more acute than under the pre-2022 regime: for every 1 basis point rise in real interest rates, gold prices fall by about $20, for a cumulative decline of over 20%.

JPMorgan believes that this "excess sensitivity" reflects the extreme weakness of other demand segments—their absence amplifies the impact of real interest rate shocks while compressing the support base for gold prices.

Fed Path: Patience is Golden, but Upside Pressure Remains

JPMorgan's baseline forecast is: The Fed will hold steady this year, with the first rate hike delayed until the third quarter of 2027. However, market pricing has already run ahead—the OIS forward market is currently almost fully pricing in one rate hike this year, and expects a cumulative hike of nearly 40 basis points by April 2027, which is earlier and more aggressive than JPMorgan's baseline.

Even if the Fed ultimately maintains patience as JPMorgan expects, the problem remains: the upward slope of the OIS curve (i.e., the market pricing the next move as a hike) will be quite sticky. This is because the U.S. labor market has recently shown strong momentum, new Chair Warsh is more hawkish on inflation, and the 10-year Treasury yield is still more than 20 basis points below the model-implied fair value, suggesting further upside for medium-term rates.

In this context, unless employment or inflation data show a clear weakening, the market will continue to bring forward the timing of Fed rate hikes rather than significantly unwinding hawkish expectations. This "persistently upward-sloping OIS curve" will act like a cap, suppressing the recovery of ETF holdings and dampening broader investor demand for gold.

Based on updated real interest rate forecasts, JPMorgan has sharply revised down its 2026 global gold ETF flow forecast from a net inflow of around 400 tons to a net outflow of around 50 tons (as of June 26, the year-to-date net inflow is still about 19 tons).

Short-Term Downside Risks Significant, Long-Term Logic Unchanged

For the short-term outlook, JPMorgan clearly states that the risks to its baseline forecast are tilted to the downside, primarily through two paths:

• Path 1: The Fed is forced to raise rates prematurely.

JPMorgan's interest rate strategists believe that the 1999-2000 rate hike cycle is the closest historical analogy, with the Fed then hiking by about 50 to 100 basis points in total. If the market begins to price in this scenario, medium-term Treasury yields could rise another 50 basis points, gold prices would likely break below $4,000 per ounce, triggering technical selling, with a target range of $3,500 to $3,600.

• Path 2: An unexpected strengthening of the U.S. dollar.

JPMorgan's FX strategists believe that the "U.S. exceptionalism" narrative is re-emerging. A more critical risk is that if AI is more widely used as a geopolitical lever, the growth divergence between the U.S. and other economies could widen further, pushing the dollar into a stronger trend, which would exert additional pressure on dollar-denominated gold.

Despite the cautious near-term outlook, JPMorgan has not abandoned its long-term bullish stance on gold. The report emphasizes that the "debasement trade" is not dead, only temporarily overshadowed by the hawkish monetary policy narrative.

Two structural forces supporting the long-term bullish view remain intact:

• Central Bank Gold Purchases: Net buying resumed in April and May, and China's gold import data remains strong (even if domestic retail demand is weak, it suggests continued official accumulation). JPMorgan has slightly lowered its 2026 global central bank net gold purchase forecast from 640 tons to 600 tons, but the strategic logic of long-term accumulation remains unchanged.
• Return of Physical Demand: Once India's import restrictions are lifted, it will trigger a concentrated release of pent-up demand; a cyclical recovery in Asian physical demand will also provide support for gold prices.

JPMorgan expects that as these structural forces re-emerge in 2027, gold prices will rise quarter by quarter: $4,600 in Q1, $4,700 in Q2, $4,800 in Q3, $5,000 in Q4, with a full-year average of about $4,775 per ounce. However, the prerequisite for this recovery path is that the Fed can achieve a more substantial dovish pivot—this is the necessary condition to rekindle gold's upward momentum.

Silver: From "Scarcity Premium" to "Supply-Demand Rebalancing"

Silver is undergoing a profound fundamental shift. Last year, extreme tightness in the physical market drove silver to significantly outperform gold; this year, that logic is reversing.

JPMorgan expects that in 2026, demand for silver from solar panels will decline by about 30% year-over-year, equivalent to a reduction of about 60 million ounces. This means that after five consecutive years of supply deficits, the silver market (excluding inventory and ETF flows) will move toward balance this year, and could even see a slight surplus in 2027.

The shift in supply-demand dynamics directly affects silver's volatility relative to gold: on days when gold falls, silver will decline more sharply—this is the opposite of the asymmetric pattern last year when "gold rose, silver rose more."

Based on this, JPMorgan expects the gold-to-silver ratio to narrow further from current levels toward 70 (second half of 2026) and 75 (2027), with silver prices likely trading in the $62 to $65 per ounce range, averaging about $70.6 in 2026 and about $63.9 in 2027.

Platinum and Palladium: Following Gold's Downside, Waiting for Stabilization Signals

Platinum and palladium have also suffered from significant ETF selling, with metal continuously supplied to the physical market, causing prices to fall in tandem with gold.

For platinum, the current price around $1,600 per ounce is close to what JPMorgan considers the "fundamental incentive price"—below this level, necessary supply investments by South African miners would face the risk of being shelved, potentially leading to more severe and prolonged supply tightness.

JPMorgan expects that as gold stabilizes in the second half of 2026, platinum will find firmer support as well, with the year-end average price expected to recover to $1,800, and further rise to $1,950 by end-2027.

For palladium, the continued increase in electric vehicle penetration is pushing the supply-demand balance toward a significant surplus. JPMorgan believes that the platinum-palladium spread needs to widen further to accelerate substitution trends and support palladium demand. Palladium is expected to recover to $1,350 by year-end, but the full-year average price in 2027 will remain constrained, staying around $1,300.

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