Gold prices have recently pulled back significantly under pressure from rising U.S. Treasury yields, but Morgan Stanley has not changed its bullish view over the next 12 months. The bank's strategists believe that $4,000 is a "fairly strong floor." The recent sharp decline in gold has not yet undermined its long-term allocation logic. This is the view from Morgan Stanley. Amy Gower, the bank's head of metals and mining strategy, said three factors could support gold prices in the coming months. Gold prices fell to a seven-week low earlier this week, mainly pressured by rising U.S. Treasury yields. On Wednesday, spot gold rose more than 0.4% to touch $4,200 per ounce, but it is still down more than 5% this month. Over the past six months, gold prices have fallen by about 10% cumulatively.
Central Bank and Chinese Physical Demand Remain Resilient
Gower pointed out that physical gold demand remains strong, especially with central bank buying staying active. Data released earlier this month by the World Gold Council (WGC) showed that central banks net purchased 23 tonnes of gold in July, with China and Poland increasing holdings by 20 tonnes and 8 tonnes respectively. Speaking on CNBC's "Squawk Box Europe" on Tuesday, Gower said China's gold imports are on track to reach their highest level since 2017. She said: "China appears to have very strong demand for gold." According to World Gold Council data, China's gold imports have already exceeded 1,000 tonnes in the first eight months of this year. The data also includes both private sector and institutional demand, indicating that physical gold demand in the Chinese market remains at a relatively high level.
Rising Bond Yields Remain a Short-Term Pressure
Gower said concerns about long-term public debt and fiscal sustainability continue to mount in global markets, but rising bond yields remain the main challenge for gold. Gold itself does not generate interest, and when bond yields rise, its relative appeal tends to be suppressed. However, she believes that if new policy intervention emerges in the long-term bond market, or if market expectations for inflation change, gold prices could regain support. Gower said: "What happens if there is more intervention in the long-term bond market and yields fall again?" Oil price trends are also an important variable affecting gold. As U.S. and Iranian officials are reportedly making contact through mediators separately, there is a possibility of de-escalation in the Middle East conflict that has lasted for months. Kpler data shows that Middle East crude oil exports this month have rebounded to one of their highest levels since the outbreak of the conflict. If de-escalation pushes oil prices lower, inflation expectations could be eased to some extent, thereby reducing upward pressure on interest rates and bond yields. Gower said on this: "What happens if oil prices fall?"
Morgan Stanley Still Bullish on Gold Over the Next 12 Months
Looking ahead to the fourth quarter of 2026, Gower said that from a 12-month perspective, she remains bullish on gold, while acknowledging that amid uncertainty in the economic outlook, gold prices could still experience significant volatility as Federal Reserve meetings and economic data are released. She said gold still has "many reasons" to be held, and believes that "$4,000 is a fairly strong floor."
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