At what level will the gold price rally finally "cool off"? J.P. Morgan believes the theoretical ceiling is $8,400.
Amid significant volatility in the metals market, a team of J.P. Morgan commodity analysts led by Gregory Shearer released a new research report. While reiterating a year-end target price of $6,300 per ounce, they also introduced a quantitative framework for judging when gold prices might peak.
The bank argues that the medium-term framework for gold is rooted in "demand tonnage." Because the short-term supply of gold is extremely inelastic, prices must rise to attempt to restore market balance whenever demand surges sharply.
Gregory Shearer wrote:
"Assuming the willingness to buy—that is, nominal fund inflows—from investors and central banks remains unchanged, the market imbalance driving prices higher will only subside once prices rise sufficiently high that the same nominal demand impulse translates into a low enough tonnage."
In other words, the mission of rising gold prices is to "make the same amount of money buy less gold," until physical demand falls to a level that the supply can cover. J.P. Morgan's answer is: "Before the appetite of investors and central banks weakens, this price might need to exceed $8,000 per ounce."
380 Tonnes: The "Break-Even Point" for Gold Price Increases
To translate theory into prediction, J.P. Morgan conducted a regression analysis comparing the quarterly demand tonnage from central banks and investors with changes in the gold price.
Data mining revealed that physical demand from these two channels must exceed 380 tonnes per quarter for the gold price to rise during that period.
This conclusion demonstrates remarkably high historical stability—long-term regression analysis starting from 2010 yields an almost identical break-even level (approximately 376 tonnes).
$8,400: The Theoretical Ceiling Under Current Nominal Demand
From an investor's perspective, the most intuitive calculation is: how high must the gold price rise for the current amount of capital to be unable to purchase 380 tonnes of gold?
J.P. Morgan data shows that the average nominal demand from investors and central banks over the past two quarters was slightly above $100 billion. Assuming this nominal funding size remains constant, a simple division leads to a conclusion:
"The gold price would need to rise to approximately $8,400 per ounce for the tonnage figure to fall below 380 tonnes—which is historically the threshold required to sustain price increases."
J.P. Morgan acknowledges this is a limited heuristic model that does not account for changes in jewelry demand or the supply from scrap gold recycling. However, the bank emphasizes that the conclusion is clear:
"While the air certainly gets thinner as prices move higher, we do not believe we are yet close to the risk of gold's structural rally collapsing 'under its own weight'."
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