Gold may be wrestling with immediate pressure, but Morgan Stanley still expects the metal to climb back above $5,000 an ounce by the second half of 2027. Amy Gower, head of metals and mining strategy at Morgan Stanley, said strong central bank and exchange traded fund demand continue to support the market.
Gower acknowledged that gold currently faces a difficult mix of powerful market forces. “We’ve got these long-dated bond yields hitting 20-year highs,” she said. “We’ve got a bit of dollar strength coming through. We’ve obviously got oil price strength as well.”
Positioning has also contributed to the turbulence. Many investors added to their gold holdings during August, and Gower said a significant portion of those positions was probably established near current prices, leaving them vulnerable during a sharp decline like the market experienced on Monday.
Even after that selling, gold appeared to find support above $4,000. “I think we have to ask ourselves why is that? What else is going on here? And I think we can point to a few things,” Gower said.
Physical buying remains an important part of the outlook, particularly demand from central banks including China and Poland. Gower said broad Chinese gold imports are on track to reach at least their highest level since 2017 and possibly their highest point over an even longer period.
“China seems to have this very, very strong appetite for gold. We should remind ourselves they’re going off for Golden Week on Thursday, so they might be a little quiet, but maybe when they’re back, we’d see that re-engagement,” she said.
Persistent worries about government debt and fiscal sustainability also remain in the picture. Gower raised the possibility of further intervention in long dated bond markets and asked what could happen to gold if yields or oil prices moved lower.
“I think there’s still lots of reasons to have gold, and I think we should see $4,000 as quite a strong floor,” she said. That floor has held even as pressure from the dollar, bond yields and oil complicated the immediate trading environment.
Morgan Stanley sees algorithmic funds as a likely source of some recent selling. Gower said those funds were sellers during the second quarter and into July, reversed their positions in August and have probably changed direction once again as technical signals came under pressure.
Other major buyers have behaved differently. “In fact, exchange traded funds have been adding to gold, which is unusual in a market which is first anticipating and then delivering Fed rate hikes,” Gower said, adding that central banks could return more forcefully following the pullback.
The relationship between gold, the dollar and bond markets has also been shifting. Gower said gold and the dollar have a correlation close to zero over the long term, though temporary periods of inverse correlation can emerge.
A stronger dollar makes gold more expensive for holders of other currencies, but gold and the dollar can also advance together when both function as safe havens. “I think at the moment, that seems to be the way it’s trading, stronger dollar, weaker gold,” she said. “But I wouldn’t be surprised if this changes as well.”
Silver, meanwhile, has behaved more like a high beta version of gold during the past six months than an industrial counterpart to copper. Gower said industrial demand has been much weaker this year after strong demand last year, with high prices and volatility encouraging thrifting.
Addressing silver’s explosive run to $120, Gower rejected the idea that the move was driven entirely by hype. “I think there was real physical demand,” she said. “We had a big push on solar last year, and we had a lot of ETF buying. But I think it did get a bit overstretched, and then when the price came down, it came down very fast.”
Despite possible near term pressure, Morgan Stanley remains constructive on gold over the coming months. “We do see upside to gold on a 12-month view,” Gower said. “We do see the price moving back above $5,000 an ounce by the second half of 2027, so we would say, on these pullbacks, we would be looking to add to gold positions.”