After a powerful surge of over 170% in the past five years, is the bull market for gold nearing its end? Addressing this question, several strategists from JPMorgan's private banking and global research divisions offered a relatively cautious yet optimistic assessment: while valid arguments exist against further price appreciation, they are currently insufficient to reverse the long-term trend.
The primary drivers behind gold's sharp rise in recent years are closely linked to the onset of a "geopolitically fragmented era." Since the outbreak of the Russia-Ukraine conflict, global political risks have significantly increased, sparking discussions about the safety of dollar-denominated assets and prompting some nations to reassess their reserve structures. Concurrently, market concerns have mounted regarding currency devaluation, widening fiscal deficits, slowing economic growth, and persistent inflation risks.
During major geopolitical shocks, gold has delivered an average return of approximately 1.8%, with a median return of 3.0%, generally outperforming most traditional asset classes. This characteristic as a "safe haven during stressful periods" makes it a crucial defensive component within asset allocations.
A key question arises: if geopolitical conflicts are unlikely to ease in the short term, what factors could potentially halt gold's ascent?
The first potential risk identified by JPMorgan stems from central bank demand. Since the 2022 Russia-Ukraine conflict, net gold purchases by global central banks have doubled. The U.S. decision to freeze Russian assets has accelerated reserve diversification efforts in some countries, aiming to reduce reliance on the U.S. dollar.
Currently, excluding the International Monetary Fund (IMF), the top five countries holding the largest gold reserves are the United States, Germany, Italy, France, and Russia. A slowdown in central bank demand, or a shift to net selling, could theoretically pressure gold prices. Historical precedent exists: between 1999 and 2002, the UK government conducted large-scale gold reserve auctions, and Switzerland decoupled the Swiss franc from gold. Following the UK's announcement, gold prices fell roughly 13% within three months. Subsequently, multiple central banks signed the Washington Agreement on Gold, coordinating and limiting large-scale sales. This agreement expired in 2019, after which central banks collectively became net buyers.
However, JPMorgan believes the likelihood of large-scale central bank selling in the near term is extremely low. By 2025, gold reserves in emerging markets are projected to constitute about 19% of total reserves, significantly lower than the approximately 47% share in developed markets. Using China as an example, despite being a major global holder, gold represents only about 8.6% of its foreign exchange reserves, indicating room for further increase. Furthermore, countries like Poland, India, and Brazil have continued to accumulate gold in recent years. Surveys indicate that 95% of central banks anticipate global gold reserves will continue growing in 2025, with no respondents expecting a decline. Even for the U.S. Federal Reserve, selling gold would require significant legislative action, breaking over a century of precedent, making it highly improbable.
The second risk originates from retail investors. Amid rising geopolitical risks and macroeconomic uncertainty, retail capital has flowed into gold ETFs. Concerns exist that this capital could exit quickly if risk sentiment improves or alternative hedging instruments emerge. For instance, at the end of January, gold prices surged 20% within a week, only to retrace by a similar magnitude over the next two days, highlighting how short-term funds can amplify volatility.
Nevertheless, from a long-term structural perspective, retail participation has not reached historical extremes. Current global gold ETF holdings are approximately 100 million ounces, equivalent to only about 8% of central banks' global gold holdings. This level remains below the record of about 110 million ounces set in 2020. JPMorgan contends that while retail flows exacerbate short-term volatility, they are insufficient to dictate long-term pricing trends.
From an asset allocation standpoint, gold serves not only as a short-term hedge but also as a core long-term asset for diversification. Its advantages are threefold: First, gold historically functions as a hedge against inflation and currency devaluation over the long term. When fiscal deficits widen, money supply growth accelerates, or real interest rates fall, the purchasing power of fiat currencies often erodes. Gold, as a scarce asset with intrinsic value not reliant on any sovereign credit system, is viewed as a vital tool for hedging currency credit risk.
Second, during periods of significant financial market turbulence or rising systemic risk, gold typically demonstrates resilience or even appreciates counter-cyclically. Whether facing geopolitical conflicts, financial crises, or liquidity shocks, gold often assumes the role of a "safe-haven asset," providing a buffer for investment portfolios.
Third, gold exhibits low correlation with traditional assets like stocks and bonds. This low correlation means that when other asset prices decline simultaneously, gold may not move in the same direction, thereby helping to smooth overall portfolio returns and reduce overall volatility.
JPMorgan's global head of commodities strategy, Natasha Kaneva, previously noted that the "repricing" trend for gold is not yet complete. The entry of Chinese insurance funds and allocations from some cryptocurrency investors into gold could generate new demand in 2026. The bank forecasts that global central bank gold purchases will remain robust in 2026, averaging about 585 tonnes per quarter. Concurrently, a weaker U.S. dollar, lower U.S. interest rates, and ongoing economic and geopolitical uncertainties are traditional supportive factors for gold.
In the current environment, gold acts both as a hedge against currency devaluation and, to some extent, competes as a "non-yielding asset" against U.S. Treasuries and money market funds.
In conclusion, JPMorgan does not deny the potential for volatility in gold or the importance of central bank and retail investor behavior as key variables. However, based on reserve structure rebalancing, sustained official demand, and the trend toward asset diversification, the structural support for gold remains intact. In other words, while the path higher for gold prices may not be linear, the core arguments for a bearish stance at this stage still lack substantial evidence.