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J.P. Morgan Sees Golden Opportunity Amid Election Uncertainty: Gold Prices Poised for Gains

AInvestSunday, Nov 3, 2024 7:00 am ET
2min read

J.P. Morgan's latest report suggests that despite prevailing sentiments of short-term risks, the medium-term fundamentals for gold remain strong. Regardless of the U.S. election outcome, factors like the Federal Reserve's rate-cutting cycle, global central bank gold demand, and widespread currency depreciation will continue influencing gold prices.

"It is challenging to hold a pessimistic view on gold," states J.P. Morgan, positioning any potential price dip as a buy opportunity. The report indicates that while election results may lead to market volatility, the long-term outlook benefits from the Fed's easing, central banks' purchases, and currency depreciation.

The report speculates that if the Republicans secure a comprehensive win, there is potential for gold prices to increase by 7-10% in the coming 1-2 quarters. Even in the most conservative scenario, such as a Harris win coupled with a divided Congress, gold prices might see a short-term pullback of 2-3%, followed by potential gains.

Since July, gold prices have risen approximately 15%, buoyed by declining yields and expectations of ongoing rate cuts. As anticipation of a Trump victory and Republican triumph gains ground, investors are increasingly turning to gold, seeking a hedge against U.S. fiscal concerns, inflation fears, and geopolitical tensions, even as the dollar strengthens.

Gold's popularity is underscored by its recent recognition as the year-end standout performer next to the S&P 500 at the IMF/World Bank fall meetings. COMEX gold futures net long positions have approached peak levels from 2020, pointing to this strong investor interest.

With the U.S. elections imminent, short-term fluctuations in gold prices are expected. However, J.P. Morgan asserts that the underlying supportive factors for gold will persist, maintaining a favorable long-term view. Factors like global monetary easing, central bank gold purchases, and currency depreciation remain pivotal to the future trajectory of gold.

J.P. Morgan's commodities team, led by Natasha Kaneva, emphasizes that regardless of the election's result, these foundational elements endure. They view any post-election dip as an advantageous entry point for investments in gold.

The analysis offers scenarios on potential gold price responses under various election outcomes. A Republican sweep could accelerate gold's ascent by 2-3% in the short term and further in the following quarters, driven by investor actions to hedge against policy-induced inflation and fiscal deficits.

Conversely, a Trump presidency but divided Congress might result in modest short-term gains, with the longer-term projection over a couple of quarters observing a 3-5% increase. Even under a Harris-led administration with a split Congress, gold could experience a minor decline due to profit-taking but shows promise for a small uptick in subsequent quarters.

The report concludes that while present consensus on market bullishness might trigger short-term retracement risks, mid-term prospects for gold's fundamentals are robust. As the Federal Reserve's monetary policies, central banks' gold purchases, and currency strategies persist, they will continue to reinforce gold demand, irrespective of political developments in the U.S.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.