Despite a recent pullback in gold prices, Morgan Stanley maintains a bullish long-term outlook for the precious metal. Amy Gower, head of metals and mining strategy at Morgan Stanley, identifies three compelling factors that could bolster gold's value in the coming months, even as it recently touched a seven-week low.
Gold futures saw a modest rise on Wednesday, reaching $4,212.60, while spot gold remained stable at $4,180.78. This slight recovery follows a sharp decline on Monday, fueled by concerns that escalating bond yields might diminish the appeal of non-interest-bearing assets like gold. Over the past six months, the precious metal has shed approximately 10% of its value.
The first key reason to remain invested in gold is robust physical demand, particularly from central banks. According to data from the World Gold Council, central banks collectively purchased a net 23 metric tons of gold in July alone. Gower specifically highlighted significant acquisitions by China, which bought 20 metric tons, and Poland, which added 8 tons during July. Speaking to CNBC's "Squawk Box Europe" on Tuesday, she noted that China's overall gold imports are on track to hit their highest levels since 2017, underscoring the nation's "very strong appetite for gold." Total Chinese gold imports, encompassing both private and institutional demand, surpassed 1,000 metric tons within the first eight months of the year, as reported by the WGC.
Secondly, while acknowledging the challenge that higher bond yields pose for non-yielding assets like gold amid global concerns about public debt and fiscal sustainability, Gower suggests that potential future policy interventions or shifting inflation expectations could work in gold's favor. She posed the question: "What if we get more intervention in that long-dated bond market and then you get yields coming back down?"
The third factor relates to geopolitical developments. Reports of separate talks between U.S. and Iranian officials, mediated to resolve the seven-month conflict in the Middle East, could lead to a rapid de-escalation. Kpler data indicates that Middle Eastern crude exports have already rebounded this month to their highest levels since the war began. Should oil prices fall due to such de-escalation, it could ease inflation expectations, thereby mitigating upward pressure on interest rates and bond yields, and consequently boosting gold prices. Gower queried, "What happens if oil comes down?"
Looking ahead to the final quarter of 2026, Gower expresses a preference for gold over a 12-month horizon. She acknowledges the inherent volatility of the asset against an unpredictable economic backdrop, marked by upcoming Federal Reserve meetings and economic data releases. "There are still lots of reasons to have gold," she concluded, asserting that "We see $4,000 as quite a strong floor."
