JPMorgan Chase believes that as gold prices remain high, the probability of the People's Bank of China pausing gold purchases in June has significantly increased. This expectation, combined with the potential easing of US-China trade tensions, may lead to a short-term correction in gold prices.
According to news from the Wind Trading Desk, JPMorgan Chase analysts, including Avery Chan, stated in their latest research report that the People's Bank of China's gold purchases in May slowed to 60,000 ounces, the same level as before the pause in purchases at the beginning of 2024. If gold prices remain at current levels, the likelihood of a pause in purchases in June has increased to about 70%.
With the expectation that US-China trade tensions may ease, JPMorgan Chase believes that gold prices face correction risks in the short term. However, based on the trend of de-dollarization and the continued purchases by global central banks, JPMorgan Chase remains optimistic about gold in the medium to long term.
<h2>Probability of the People's Bank of China pausing gold purchases rises to 70%</h2>
JPMorgan Chase's analysis of three purchasing cycles since 2018 shows that the monthly gold purchase volume by the People's Bank of China has a constant elastic function relationship with the monthly average gold price.
It is noteworthy that the central bank's sensitivity to gold prices has become less elastic in this cycle—when gold prices rise by 1%, the purchase volume only decreases by 6%, whereas in the cycle from November 2022 to April 2024, this ratio was 12%. JPMorgan Chase believes this indicates that, given the ongoing trade tensions 2.0 and the trend of de-dollarization, China has taken a more strategic stance on gold reserves.
Regarding the decision to pause gold purchases, JPMorgan Chase infers that the People's Bank of China has an implicit minimum purchase level in this cycle, estimated at about 60,000 ounces, the same level as when the central bank stops purchasing in 2024:
<blockquote>
Although the central bank has the autonomy to continue purchasing gold when prices are high, the lower the purchase volume indicated by the demand function relative to the minimum purchase level, the greater the likelihood that the People's Bank of China will pause gold purchases and begin to adjust its demand curve with updated instructions.
</blockquote>
According to JPMorgan Chase's estimates, if gold prices remain at current levels, the likelihood of the People's Bank of China pausing purchases will increase to about 70%, compared to 50% in May and 31% in April.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/5c19207a-6fbd-41fc-b40c-19bc33ac2a40.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/5c19207a-6fbd-41fc-b40c-19bc33ac2a40.png"/> JPMorgan Chase expects that the pause may last from six months to three years, after which the central bank will begin a new purchasing cycle.
<h2>Short-term correction risks for gold continue to accumulate, but long-term outlook remains positive</h2>
Although JPMorgan Chase remains optimistic about long-term gold prices, it believes that short-term downside risks are accumulating. In addition to US CPI and non-farm payroll data, the easing of US-China trade tensions and the potential pause in gold purchases by the People's Bank of China are seen as two major risk factors.
Historical experience shows that when the data on the central bank's pause in gold purchases is announced, gold prices typically drop by about 3% on average, maintaining a range-bound fluctuation for 1 to 1.5 months before regaining long-term growth momentum.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/edefb81b-f2c8-4e25-a136-85613fed8ce5.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/edefb81b-f2c8-4e25-a136-85613fed8ce5.png"/>
Considering that going long on gold is a relatively crowded trade, JP Morgan believes that if China suspends gold purchases and trade tensions ease, gold prices could fall below $3,200 per ounce to $3,100. Then, as market sentiment returns to a more neutral level, it would be a good time to buy gold on dips.
JP Morgan remains positive on the medium to long-term outlook for gold. According to estimates from JP Morgan's global commodities team, if 0.5% of foreign holdings of U.S. assets were shifted to gold, it could push gold prices to $6,000 per ounce by early 2029.
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JPMorgan Chase analysts stated that with high gold prices, the likelihood of the People's Bank of China suspending gold purchases in June has increased to 70%. This expectation is related to the potential easing of US-China trade tensions, which may lead to a short-term correction in gold prices. Analysis shows that the volume of gold purchases by the People's Bank of China exhibits an elastic relationship with gold prices, and the current purchase volume has returned to levels seen in early 2024. Despite facing short-term correction risks, JPMorgan Chase remains optimistic about the medium to long-term outlook for gold

- JPMorgan predicts a 70% chance that the People's Bank of China will pause gold purchases in June due to high gold prices and easing US-China trade tensions, which may lead to a short-term price correction.  
- The bank's analysis shows that the monthly gold purchase volume has decreased to 60,000 ounces, aligning with levels before a potential pause in 2024.  
- Despite short-term risks, JPMorgan remains optimistic about gold's long-term prospects, estimating prices could reach $6,000 per ounce by early 2029 if a portion of foreign-held US assets shifts to gold.

JP Morgan: If gold prices remain at current levels, the likelihood of the People's Bank of China pausing purchases in June is 70%