Gold’s ascent to roughly $4,600 an ounce is justified and may have further to run, according to a May 7 JPMorgan report that points to a new class of buyers and a structural shift in global asset allocation. The bank’s analysis suggests that while traditional valuation models show gold as expensive, its current price reflects a rational premium for acting as insurance against growing fiscal and geopolitical instability.
"Gold is expensive by any quantitative model, but that doesn't mean it's wrong," the JPMorgan Asia Pacific research team said in the report, following a meeting with World Gold Council Chief Market Strategist John Reade. If historical models that tie gold to factors like U.S. real yields were still valid, the price would be closer to $1,000-$1,900 an ounce, not the $4,683 it traded at on May 6.
The report argues that the rally, which saw a 188% return in five years, has been almost entirely fueled by physical demand from Asia and aggressive purchasing from emerging market central banks. This has occurred even as Western institutional investors, who were the primary drivers of past bull markets, were net sellers of gold-backed ETFs between 2021 and 2024.
The key insight, according to JPMorgan, is that the next major wave of demand has not even started. The structural reallocation from traditional 60/40 stock and bond portfolios into gold by Western pension and insurance funds—a move the bank calls the "century grand-realignment"—is still on the horizon. This potential shift could dwarf current demand drivers.
Central Banks and Hidden Buyers Build a New Floor
The foundation for the current gold price has been built far from Wall Street. Central banks purchased a net 244 tonnes of gold in the first quarter of 2026, a 17% increase from the previous quarter and well above the five-year average, according to World Gold Council data. This sovereign demand creates a high price floor independent of Western investment sentiment.
JPMorgan’s report highlights that official figures likely understate the true scale of buying. It also identifies two emerging, non-traditional buyers currently hidden from standard supply-demand models. The first is Chinese insurance companies, which in 2025 were approved to allocate up to 1% of their assets under management—equivalent to a potential 200 tonnes of gold—into the physical metal.
The second is Tether, the issuer of the world's largest stablecoin. In 2025, Tether purchased approximately 100 tonnes of gold to back its reserves, citing concerns over the U.S. dollar's structural stability. These two entities alone represent a significant new source of demand that is not yet fully visible to the market.
The West's 'Great Reallocation' Is the Next Catalyst
While Asian demand has established a new price floor, JPMorgan contends the next ceiling will be determined by the West. The bank estimates that global pension and insurance funds hold a combined $80 trillion in assets, with an average gold allocation of only 2%. The World Gold Council has long argued the optimal risk-adjusted allocation is between 5% and 10%.
A mere 1 percentage point shift in allocation from 2% to 3% would unleash approximately $800 billion in demand, equating to roughly 5,000 tonnes of gold. This single move would exceed the entire annual global mine supply of about 4,500 tonnes. This structural shift, driven by the breakdown of the traditional 60/40 portfolio's hedging properties in a stagflationary environment, has not yet begun on a large scale.
With institutional price targets from firms like Goldman Sachs ($5,400) and JPMorgan itself (up to $6,300) pointing to significant upside from the current spot price, the market is pricing in this eventual rotation. The current price of $4,600, JPMorgan concludes, may be an expensive insurance premium, but it is a premium on risks that are becoming increasingly apparent.
This article is for informational purposes only and does not constitute investment advice.
