JPMorgan has pointed out that as gold prices pulled back after testing the $4,000 mark and the appeal of stocks diminished, Chinese households' willingness to buy gold has clearly strengthened over the past two months.
At the same time, fund flows into GLD (the gold ETF) have diverged from the spot gold price (XAU), making going long gold look "more and more like a no-brainer."
The macro logic JPMorgan lays out is that gold wins in all three scenarios: if both real interest rates and inflation decline, gold benefits; if inflation stays sticky and the "debasement trade" returns, gold also benefits; and if a flight-to-quality growth panic emerges, gold benefits as a high-quality safe-haven asset.
Conversely, the only bearish logic—rising real rates combined with capital rushing into yield-bearing assets during a growth bull market—is hard to sustain in the current macro environment: with the 10-year U.S. Treasury yield already near 5%, further increases would almost certainly come with higher inflation or wider credit spreads, both of which would threaten risk assets.
In addition, this round of beta drawdown has "washed" gold positioning down to its lowest level of the year, leaving positioning clean.
Two major structural supports also stand out: first, the People's Bank of China's (PBOC) continued gold purchases alongside dip-buying by Chinese retail investors form structural demand; second, the macro paradigm may be shifting—the correlation between interest rates and AI allows stocks to keep rising in an environment where rates remain controlled.
It is also worth noting that CTAs currently hold short positions in precious metals—meaning short-covering could likewise become a technical boost for gold upside.
Overall, JPMorgan believes that against the fourfold backdrop of "winning in most scenarios, a bearish case that is hard to establish, positioning already cleared out, and central bank plus retail demand providing a floor," the current allocation window for gold is quite attractive.
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