Can gold prices rise again after the pullback? Why does JPMorgan still see gold hitting $4,500?

On July 7, international gold prices saw a significant pullback after last week's strong rebound. Spot gold opened higher but then trended lower, hitting a two-week high of $4,202.73 per ounce in early Asian trade, but subsequently oscillated downward, falling to a low of $4,128.39 per ounce during the U.S. session. By the close of the day, spot gold was at $4,165.13 per ounce, down 0.25%. It briefly breached the $4,140 level during the session, with an intraday decline of 0.60%.

This pullback was not an isolated event. The U.S. dollar index rebounded moderately, U.S. Treasury yields remained high, profit-taking from earlier gains, and improved sentiment in risk assets—multiple macro factors combined to form a short-term force suppressing gold prices.

Meanwhile, in its latest precious metals outlook released on July 6, JPMorgan lowered its gold price target for the fourth quarter of 2026 from approximately $6,000 to $4,500, a reduction of 25%. This adjustment has drawn widespread market attention—does the significant downward revision mean that this "gold bull flag bearer" has undergone a fundamental shift in its long-term view on gold? Starting from the driving logic behind the July 7 gold price correction, we delve into the real considerations behind JPMorgan's target price adjustment, sort out the key variables determining gold's next move, and synthesize mainstream market views to judge the future direction of gold.

Why Did Gold Prices Suddenly Retreat? Dual Pressure from a Strengthening Dollar and Rising U.S. Treasury Yields

U.S. Dollar Index Moderately Strengthens

As the pricing currency for gold, changes in the dollar's exchange rate have a direct and significant impact on gold prices. On July 7, the U.S. dollar index, after strengthening at the open, gave back some gains, briefly hitting the 101 level during the session, and finally closed at 100.86, almost flat from the previous trading day. The previous week, June nonfarm payroll data, which was far below market expectations, had pushed the DXY down 0.5%, but entering the new trading week, the dollar saw a technical rebound.

A stronger dollar makes gold more expensive for overseas investors holding other currencies, directly dampening physical buying. Somesh Kapuria of Hola Prime noted in a comment that gold has been in a downtrend since the beginning of this year, and a stronger dollar continues to weigh on the precious metal.

U.S. Treasury Yields at Elevated Levels

As a non-yielding asset, gold's opportunity cost is highly correlated with real interest rates. When U.S. Treasury yields rise, the relative attractiveness of holding gold declines. On July 7, the benchmark 10-year U.S. Treasury yield traded around 4.467% to 4.48%. A dislocation pattern emerged in the market—"short-end down, long-end up"—with the 2-year Treasury yield at 4.108% to 4.116%, while the 30-year long end rose against the trend to 4.984%. This structure reflects an acceleration in the market's repricing of the Fed's policy path.

Weak employment data directly dampened market expectations for a Fed rate hike. The U.S. added only 57k new nonfarm jobs in June, less than half the market expectation of 110k, while April and May data were revised down by a combined 74k. Interest rate swap market pricing indicated about a 36% probability of a 25-basis-point rate hike at the July FOMC meeting.

Profit-Taking and Technical Correction

After several consecutive trading days of gains, gold prices had accumulated considerable short-term gains. On July 6, spot gold surged to $4,202.09 per ounce early in the session, hitting a two-week high. Some traders chose to lock in profits before the release of the Fed meeting minutes, exacerbating the intraday decline.

Improved Risk Asset Sentiment

At 5:30 p.m. Beijing time on July 7, all three major U.S. stock indices closed higher. The Dow Jones Industrial Average rose 0.29% to 53,055.91 points, breaking through 53,000 points for the first time to set a new record high; the S&P 500 rose 0.72% to 7,537.43 points; and the Nasdaq Composite Index rose 1.12% to 26,121.16 points. The recovery in risk appetite diverted some safe-haven funds that might have flowed into gold.

Easing of Strait of Hormuz Risk

On the geopolitical front, the risk in the Strait of Hormuz has shifted from a severe shock to a manageable concern. After OPEC+ hinted at production increases and shipping activities continued to recover, oil prices fell, with Brent crude at $71.99 per barrel. Oil prices have largely returned to levels before the U.S. and Israel launched military strikes on Iran, effectively alleviating short-term inflation panic. The phased cooling of geopolitical risks diminished gold's safe-haven premium.

Key Judgment: Nature of the Pullback

In summary, this decline is more of a short-term technical adjustment driven by macro factors rather than a fundamental shift in gold's long-term pricing logic. In fact, the weak employment data lowered market expectations for Fed rate hikes, a macro backdrop that supports gold's medium- to long-term trajectory rather than being bearish.

Why Is JPMorgan Still Holding a $4,500 Target? The Logic Behind the Downgrade from $6,000

In its latest research report released on July 6, JPMorgan lowered its gold price target for the fourth quarter of 2026 from approximately $6,000 to $4,500. At the same time, it expects gold to average $4,300 in the third quarter. This adjustment is significant—a 25% reduction.

Short-Term Logic for the Target Downgrade

JPMorgan noted in the report that in the short term, gold prices may be constrained by weakened purchasing power in key demand areas and will generally remain range-bound. Gold has become sensitive again to changes in real interest rates, a factor that may curb further price increases. Additionally, buying from major demand sources this year may not be as strong as previously expected, prompting the bank to revise down the upside for gold prices.

Long-Term Bullish Logic Unchanged

Despite lowering the short-term target, JPMorgan's long-term bullish stance on gold remains firm. The bank expects gold to gradually recover in the second half of 2026, averaging about $4,300 per ounce in the third quarter and rising to about $4,500 in the fourth quarter. Looking ahead to 2027, JPMorgan believes gold prices are likely to continue their upward trend, mainly driven by ongoing central bank purchases, stronger physical demand, and persistent long-term structural allocation needs. These factors will support gold's long-term appeal as a safe-haven and reserve asset.

Core factors supporting this judgment include:

Continued Central Bank Gold Purchases Globally. Central bank buying has become the most stable incremental source in gold's demand structure. Although the latest global central bank gold reserve survey data was not fully presented in the above materials, major institutions generally agree that central bank gold purchases are one of the strongest supports for gold's long-term bull market. The uniqueness of this demand lies in its price insensitivity—central bank buying is more based on strategic considerations such as reserve diversification, de-dollarization, and geopolitical hedging, rather than short-term price fluctuations.

Geopolitical Risk remains a core pricing factor for gold. Although the risk in the Strait of Hormuz has shifted from a severe shock to a manageable concern, U.S.-Iran negotiations have seen no new progress, and issues related to nuclear programs, sanctions relief, security guarantees, and long-term management mechanisms for the strait remain unresolved. Phased geopolitical disturbances will continue to provide a safe-haven premium for gold.

Widening U.S. Fiscal Deficit provides long-term structural support for gold. The continuous rise in U.S. debt levels fundamentally undermines dollar credit, enhancing gold's attractiveness as an alternative reserve asset.

The Fed's Future Re-entry into a Rate-Cutting Cycle is the core macro driver for gold's medium- to long-term strength. Although the market still expects the Fed to potentially raise rates this year, weak employment data is gradually changing policy expectations. Once persistently weak economic data pushes market expectations toward a clear easing stance, falling real interest rates will open upside space for gold.

JPMorgan's downgrade of the target from $6,000 to $4,500 is a pragmatic correction for short-term weak demand and sensitivity to real interest rates, not a negation of the long-term trend. The bank's judgment that gold prices will continue their upward trend in 2027 and beyond is based on continued recognition of structural factors such as central bank gold purchases, stronger physical demand, and long-term structural allocation needs.

Five Key Variables: Core Factors Determining Gold's Next Move

Gold's pricing system is multi-dimensional. The following five variables constitute the core framework determining the direction of gold prices in the next phase.

U.S. Dollar Index

There is a stable and significant negative correlation between the U.S. dollar index and gold prices. A stronger dollar directly increases the cost of buying gold for holders of non-dollar currencies and reflects the relative strength of the U.S. economy and expectations of Fed policy tightening, both of which suppress gold. On July 7, the DXY traded in a range of 100.85 to 101.035. The future direction of the dollar will be highly dependent on the relative strength of U.S. economic data versus the monetary policies of major global economies. If U.S. economic data continues to weaken, pushing the Fed toward a policy shift, the dollar may trend lower, providing an upside catalyst for gold.

Rate Cut Expectations

Rate cut expectations are the most elastic variable in gold pricing. As a non-yielding asset, gold's opportunity cost is directly determined by real interest rates—and rate cuts are the most direct monetary policy tool to lower real interest rates. Current market expectations for the Fed's policy path are still in a phase of repeated pricing. After the June nonfarm data release, market expectations for a July rate hike have significantly cooled. Going forward, close attention should be paid to U.S. inflation data, labor market developments, and Fed policy signals. Once market expectations for rate cuts shift from "possibility" to "certainty," gold will gain strong upward momentum.

U.S. Treasury Yields

U.S. Treasury yields, especially real yields, are the most direct anchor for gold pricing. On July 7, the 10-year Treasury yield was at 4.467% to 4.48%, and the 2-year at 4.108% to 4.116%. The market showed signs of a steepening yield curve—short-end down, long-end up—reflecting cooling expectations for short-term policy tightening but rising concerns about long-term fiscal and inflation risks. This structure itself is a relatively positive signal for gold: lower short-end rates reduce the opportunity cost of holding gold, while the inflation and fiscal concerns implied by rising long-end rates are precisely the pricing positives for gold.

Central Bank Gold Purchases

Central bank gold purchases are the most certain variable on the demand side. Major institutions generally consider central bank buying as one of the strongest supports for gold's long-term bull market. Central bank purchases are more based on strategic considerations such as reserve diversification and de-dollarization, rather than short-term price fluctuations. This means that even if gold prices come under short-term pressure, central bank buying demand will still provide solid floor support.

Inflation

Inflation affects gold pricing through the real interest rate channel. When nominal rates are unchanged and inflation rises, real interest rates fall, lowering the opportunity cost of holding gold. Oil prices have fallen back to levels before the U.S. action against Iran in February, with Brent crude at $71.99, which to some extent alleviates short-term inflation pressure. However, geopolitical uncertainty means energy prices may still fluctuate. Additionally, the market remains vigilant about the inflationary effects of the AI industry, and rising global temperatures are also expected to further push up price pressures. Changes in inflation expectations will continue to affect the direction of real interest rates, which in turn feed into gold pricing.

Does Gold Still Have Upside Potential? Main Market Views and Scenario Analysis

Currently, market divergence over the future of gold is widening, with various institutions offering differing judgments based on different logical frameworks.

Optimists: Long-Term Bull Market Not Over

Optimists believe that the long-term bullish logic for gold remains intact. The structural support from central bank gold purchases, the normalization of geopolitical risks, and the continuous widening of the U.S. fiscal deficit constitute the "underlying assets" for gold's long-term pricing. Goldman Sachs lowered its end-2026 gold target from $5,400 to $4,900 but still emphasized that global central bank gold purchases of about 51 tons per month remain three times the pre-2022 level, representing the strongest support for gold's long-term bull market. State Street also gave a relatively optimistic outlook.

The core logic of the optimists is: short-term macro headwinds (strong dollar, high yields) are cyclical, while central bank gold purchases, de-dollarization, and fiscal imbalances are structural—structural forces will eventually overcome cyclical resistance.

Cautious: Q3 Range-Bound, Q4 Re-Strengthening

The cautious camp takes a more pragmatic view. JPMorgan expects gold to average $4,300 in the third quarter, maintaining a range-bound outlook in the short term. The basis for this judgment includes weakened purchasing power in key demand areas and gold becoming sensitive again to changes in real interest rates. Additionally, the market still expects the Fed to potentially raise rates this year, and rate cut expectations have not significantly warmed. Before the Fed's policy path becomes clear, gold lacks sufficient momentum to break above the upper end of the range.

The cautious camp expects gold prices to continue consolidating in the $4,100 to $4,300 range in the third quarter. As the macro environment gradually clarifies in the fourth quarter—if economic data continues to weaken, pushing expectations for rate cuts to heat up—gold prices may re-strengthen, moving toward $4,500 and higher.

The two views are not mutually exclusive but correspond to different time horizons. In the short term, the technical rebound of the U.S. dollar index, elevated U.S. Treasury yields, and weakened purchasing power in some demand areas are indeed real factors suppressing gold prices. The probability of gold trading in the $4,100 to $4,300 range in the third quarter is high.

But in the medium term, the structural forces driving gold higher have not disappeared. Strategic demand from global central bank gold purchases, the continuous widening of the U.S. fiscal deficit, and the normalization of geopolitical risks together form the underlying support for gold's long-term bull market. Once the Fed's policy expectations evolve from "rate hike pause" to "rate cut commencement," gold will usher in a new round of trend upward.

Conclusion

Gold's decline to $4,165.13 on July 7 was the result of a combination of a stronger dollar, elevated U.S. Treasury yields, profit-taking, and easing geopolitical risks—a typical short-term adjustment driven by macro factors, not a reversal of gold's long-term logic.

JPMorgan's cut of the Q4 target from $6,000 to $4,500 is a pragmatic correction for short-term weak demand and sensitivity to real interest rates. However, the bank's judgment that gold prices will continue their upward trend in 2027 and beyond remains unchanged. Central bank gold purchases, stronger physical demand, and long-term structural allocation needs are still the core pillars supporting gold's long-term pricing.

Gold's next move will be jointly determined by five key variables: the U.S. dollar index, rate cut expectations, U.S. Treasury yields, central bank gold purchases, and inflation. In the short term, gold prices may consolidate in the $4,100 to $4,300 range in the third quarter; in the medium term, once the macro environment shifts toward easing, gold prices are likely to re-strengthen in the fourth quarter, moving toward $4,500 and above.

For investors focused on gold, understanding the drivers of short-term volatility and the structural support of long-term trends is equally important—staying rational during price corrections and seizing direction when trends are established may be the most pragmatic strategy in the current market.

FAQ

Q1: Why did gold prices fall on July 7?

On July 7, spot gold fell to $4,165.13, mainly driven by a moderate strengthening of the U.S. dollar index (DXY briefly hit 101), 10-year U.S. Treasury yields holding above 4.467%, profit-taking by long positions, and the easing of risks in the Strait of Hormuz. This decline is a short-term technical adjustment driven by macro factors.

Q2: What is JPMorgan's latest forecast for gold?

JPMorgan expects gold to average $4,300 in the third quarter of 2026 and $4,500 in the fourth quarter. The bank lowered its Q4 target from approximately $6,000 to $4,500 but maintains a long-term bullish stance, expecting gold prices to continue their upward trend in 2027 as central bank purchases and structural return of physical demand support.

Q3: How much impact do central bank gold purchases have on gold prices?

Central bank gold purchases are the most stable incremental source on the demand side. Major institutions generally consider central bank buying as one of the strongest supports for gold's long-term bull market. Central bank purchases are more based on strategic considerations such as reserve diversification and de-dollarization rather than short-term price fluctuations, providing solid floor support for gold prices.

Q4: What will be the trend for gold in the second half of 2026?

Mainstream market expectations are for gold to trade in the $4,100 to $4,300 range in the third quarter, with a potential gradual strengthening in the fourth quarter. Key determinants include whether U.S. economic data continues to weaken, whether market expectations for Fed rate cuts can heat up, and whether geopolitical risks escalate again.

Q5: Is the long-term bull market for gold over?

Mainstream institutions believe the long-term bull market for gold is not over. Structural factors such as central bank gold purchases, geopolitical risks, and the widening U.S. fiscal deficit remain in place. Goldman Sachs predicts gold will reach $4,900 by end-2026, and UBS has a 12-month target of $5,200. Short-term macro headwinds are cyclical, while structural support forces are long-term.