JPMorgan Private Bank: Without the end of the rate hike cycle, gold prices are unlikely to bottom out, and there is almost no support below $4,000.

Gold prices are under pressure ahead of the Federal Reserve interest rate decision, with the $4,000 level once again becoming the market's focus. JPMorgan Private Bank has warned that gold is unlikely to form a genuine bottom before interest rates peak, and there is almost no technical support below $4,000, leaving the market “rather fragile.”

As the market focuses on tonight's FOMC decision, spot gold saw volatile declines during Wednesday’s session, with the biggest intraday drop reaching 0.8%, erasing most of the gains from the previous day. Yuxuan Tang, Head of Asia Rates and FX Strategy at JPMorgan Private Bank, said, "Gold will find a solid bottom when interest rates peak (at the end of the Fed’s current rate-hike cycle)," noting that thin liquidity and further upside risk for rates are the main downward pressures for gold prices at the moment.

The Federal Reserve is expected to hold steady this week, but traders are already pricing in the possibility of rate hikes later this year, which is capping gold’s upside. Fed Chair Kevin Warsh faces a dilemma—reassuring markets about combating inflation while dealing with the persistent pressure of high energy prices. Notably, stubbornly high energy prices are a major driver behind current inflation, and Thursday’s PCE data will further clarify the inflation outlook and rate prospects.

JPMorgan: Market is fragile; near-zero support below $4,000

Yuxuan Tang, Head of Asia Rates and FX Strategy at JPMorgan Private Bank, is cautious about the gold outlook. He pointed out that, after the recent selloff, gold remains exposed to downside risk due to thin liquidity and room for further rate increases.

"Gold will find a solid bottom when rates peak," Tang said, adding that the market is currently "rather fragile," with almost no technical support below $4,000 per ounce.

Gold recently dipped briefly below the $4,000 mark. Last week, AI-related stocks suffered a selloff, forcing investors to sell gold to cover losses in other assets, pushing gold to its lowest level since mid-July. Later, tech stocks rebounded on revived AI trading enthusiasm, which to a certain extent helped ease gold's decline.

Despite weak technical support, physical buying and bottom-fishing capital have somewhat limited further declines in gold. Chinese households' willingness to buy gold has continued to warm over the past two months—as gold prices pulled back, Chinese consumers increased their demand for physical gold.

However, demand dynamics in India are acting as a counterbalance. According to India’s largest precious metals refiner, most Indian households expect the current decline in gold prices to continue, so they are postponing gold purchases for the festival season, which to some extent weakens the support physical demand provides for gold prices.

OCBC strategist Christopher Wong said in a research report, “Near-term risks remain tilted towards further consolidation, but demand should provide some buffer once selling pressure fades.”

He also noted that for gold prices to regain more sustained upward momentum, multiple conditions must be met simultaneously, including falling oil prices, cooling inflation, a weaker US dollar, and a retreat in yields.