Recent geopolitical tensions in the Middle East initially drove international gold prices sharply higher, but they subsequently retreated quickly, a movement that diverges from traditional safe-haven behavior. Global investment bank Morgan Stanley has issued analysis stating that the pullback in gold prices is not due to weakening safe-haven demand but is influenced by a stronger US dollar and liquidity dynamics. The bank forecasts that, against a backdrop of persistent geopolitical risks, gold prices are expected to recover in the second half of 2026.
According to Reuters data, following the outbreak of conflict involving Iran, the spot price of gold climbed to approximately $5,260 per ounce before experiencing a significant decline. On March 3, the spot gold price fell nearly 3.6% in a single day, touching around $5,137 per ounce.
Analysts at Morgan Stanley, led by Amy Gower, indicated that gold's initial rise and subsequent fall align with a typical early safe-haven reaction, which was soon suppressed by changes in the foreign exchange market and risk sentiment. Data shows that since the conflict began, the US Dollar Index has risen nearly 1.5%. On March 5, the index was reported at 98.91, up 0.11% for the day. Market expectations for Federal Reserve interest rate cuts have been adjusted, with money markets now pricing in 37 basis points of cuts for 2026, down from previous expectations of 60 basis points. This, combined with renewed inflation concerns, has supported the US dollar's strength.
Morgan Stanley views liquidity dynamics as another key factor. During periods of market stress, investors tend to sell liquid assets like gold to raise cash, temporarily suppressing its safe-haven attributes. The current weakness in gold is seen as primarily strategic rather than a structural shift.
Several Wall Street institutions maintain optimistic outlooks for gold. Among them, Morgan Stanley projects a bull market scenario with a price target of $5,700 per ounce for the second half of 2026. JPMorgan maintains a year-end 2026 target of $6,300 per ounce. Goldman Sachs forecasts a target of $5,400 per ounce for December 2026, while Deutsche Bank has a 2026 target of $6,000 per ounce.
JPMorgan has previously stated that expectations for Fed rate cuts, foreign exchange market volatility, geopolitical tensions, and liquidity issues will continue to influence gold price movements. Ray Dalio, founder of Bridgewater Associates, has recommended allocating 5% to 15% of an investment portfolio to gold to hedge against market fragility.
Morgan Stanley asserts that the current pressure on gold prices is unlikely to persist long-term. If geopolitical tensions continue and the macroeconomic environment stabilizes, gold prices are expected to realign with the risk landscape and could approach $5,700 per ounce within the year.
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