Despite ongoing geopolitical uncertainty stemming from the Iran conflict, gold has not demonstrated its traditional role as a safe-haven asset. However, the gold market appears to be regaining upward momentum recently, testing a new resistance level near $4,700 per ounce. Although the price remains significantly below the peak of nearly $5,600 reached in late January, one major Wall Street firm anticipates gold will continue to climb this year, potentially "charging" toward $5,200 per ounce. This implies a potential increase of approximately 10% from current levels.
In a recent report, Amy Gower, a metals and mining commodities strategist in Morgan Stanley's research division, indicated that the core driver for gold has shifted from safe-haven demand to Federal Reserve monetary policy and the path of real yields. The firm maintains its forecast for gold to reach $5,200 per ounce by year-end, suggesting that renewed expectations for interest rate cuts could provide further upside for the metal.
Gower mentioned she is not surprised by gold's weak price action in recent months, despite heightened geopolitical uncertainty from the ongoing war involving Iran. She explained in the report, "As the conflict triggered an energy supply shock, reducing hopes for Fed rate cuts, it is hardly surprising that gold has struggled to act as a safe haven this time." She added, "Gold's sensitivity to monetary policy has become its primary price driver. This has overshadowed its safe-haven status and diminished its effectiveness as a hedge against geopolitical and inflation risks. The gold price reflects not just the impact of specific events, but more importantly, the subsequent policy responses."
Following the outbreak of the US-Iran war, high oil prices increased inflationary pressures, compelling the Federal Reserve to reassess its accommodative policy stance. Consequently, markets have almost entirely priced out the possibility of rate cuts this year. Nonetheless, Morgan Stanley still bets on at least one rate cut occurring this year, stating this would support higher gold prices. "Gold prices may remain sensitive to real yields, but we believe there is still room for appreciation," the report stated.
Gower further pointed out that the Fed is expected to implement additional rate cuts in January and March 2027. "This should be beneficial for gold, as ETF purchasing decisions are particularly sensitive to policy signals, and gold is now becoming re-correlated with the movement of real interest rates," she added.
From the perspective of current market volatility, gold's future path largely depends on the trajectory of the Middle East conflict. Last night, the US President stated that the US and Iran held "very productive" talks over the past 24 hours and that it is "very possible" an agreement could ultimately be reached. When asked about a specific timeframe for a deal, the President estimated "about a week." Analysts suggest that if the crisis concludes swiftly, the global economy should be able to recover from the current energy supply crisis.
However, Gower warned that the longer the conflict persists, the greater the risks for gold. "If markets begin to anticipate that rates will remain higher for longer, or even further hikes, gold prices could be impacted," she wrote. "Simultaneously, in a scenario where a resolution emerges, the upside for gold may be limited, as already elevated prices could dampen demand from ETFs, central banks, and consumers."
