Morgan Stanley is maintaining its $5,000-per-ounce gold price target, while offering a somewhat stark comparison: based on the relationship between real yields and gold prices from March to July this year, the theoretical gold price at current interest-rate levels should be below $3,000 per ounce. Yet the current price remains slightly above $4,000, a gap of about 28%.
Morgan Stanley attributes this to structural capital flows providing a floor. Central-bank gold purchases in the second quarter amounted to an annualized rate of about 1,155 tonnes, while global gold ETFs saw net inflows of about $31 billion in the third quarter—a record. This long-term allocation and reserve demand have turned gold from a purely interest-rate-driven trade into an asset driven by “slow-moving variables.”
Meanwhile, Yuxuan Tang of J.P. Morgan Private Bank cautions that liquidity remains tight. The Federal Reserve may continue raising rates in December this year and in the first quarter of next year, and the 10-year U.S. Treasury yield is expected to climb further. In this environment, gold remains vulnerable to a pullback; a truly solid bottom may not form until interest rates peak.
For the market, the key question now is whether central-bank and ETF gold purchases can keep up their pace, and how high Treasury yields and real yields will climb. Which side proves stronger will determine whether gold settles into a high-level trading range or returns to the lower equilibrium implied by interest-rate models.
Morgan Stanley attributes this to structural capital flows providing a floor. Central-bank gold purchases in the second quarter amounted to an annualized rate of about 1,155 tonnes, while global gold ETFs saw net inflows of about $31 billion in the third quarter—a record. This long-term allocation and reserve demand have turned gold from a purely interest-rate-driven trade into an asset driven by “slow-moving variables.”
Meanwhile, Yuxuan Tang of J.P. Morgan Private Bank cautions that liquidity remains tight. The Federal Reserve may continue raising rates in December this year and in the first quarter of next year, and the 10-year U.S. Treasury yield is expected to climb further. In this environment, gold remains vulnerable to a pullback; a truly solid bottom may not form until interest rates peak.
For the market, the key question now is whether central-bank and ETF gold purchases can keep up their pace, and how high Treasury yields and real yields will climb. Which side proves stronger will determine whether gold settles into a high-level trading range or returns to the lower equilibrium implied by interest-rate models.
