When will gold's rally run out of steam?

Gold topped $1,940 an ounce Monday

Gold surged to a record high on Monday, but the precious metal’s ferocious rally will likely run out of steam near $2,000, according to strategists at J.P. Morgan Chase & Co.

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Gold futures for the active August contract on Monday gained as much as 2.34 percent to $1,941.90 an ounce. The precious metal has climbed 26 percent this year.

“After maintaining a bullish view on gold prices for over two and a half years, we believe bullion will likely see one last hurrah before prices turn lower into year end,” wrote a group of J.P. Morgan commodities analysts led by Natasha Kaneva.

SILVER PRICES POISED TO OUTSHINE GOLD

The analysts see the precious metal reaching a high of about $2,000 an ounce amid a move that is not supported by fundamentals.

In order for gold to hold above $2,000, on a “sustained basis,” the real yield, or the nominal yield minus the rate of inflation, on government bonds -- often viewed as a safe store of value -- would need to fall another 75 basis points from -90 bps to -165 bps, they said.

“While this is not improbable, it looks unlikely given our current U.S. macroeconomic forecast and policies,” they wrote, noting that real yields will likely rise slightly to -75 bps and that gold will average $1,880 an ounce in the fourth quarter of 2020.

J.P. Morgan isn’t the only Wall Street firm expecting gold to top out near $2,000.

Earlier this month, analysts at Goldman Sachs predicted rising inflation expectations would be the “key to pushing gold higher” to their $2,000 target.

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However, not everyone on Wall Street is on board with the idea that gold is nearing its peak. Paul Ciana, a technical strategist at Bank of America, wrote last week that gold is going higher from here.

“A dip may come, and we’re still dip buyers,” he wrote, reiterating his belief that the precious metal could rally to as high as $2,296.