Morgan Stanley is optimistic about gold's mid- to long-term trend and expects it to return to $5,000 per ounce in the second half of 2027

Gold has recently faced pressure from a stronger U.S. dollar and long-term U.S. bond yields rising to 20-year highs, but Morgan Stanley remains optimistic about gold's mid- to long-term trend. (AP)

[Financial Channel/Comprehensive Report] Gold has recently faced pressure from a stronger U.S. dollar and long-term U.S. bond yields rising to 20-year highs, but Morgan Stanley is still optimistic about the mid- to long-term trend of gold. Amy Gower, head of metals and mining strategy at Morgan Stanley, expects gold prices to regain $5,000 an ounce in the second half of 2027, and believes there is considerable support near $4,000 an ounce.

In a recent interview with "CNBC," Gower pointed out that the gold market is currently facing challenges, including long-term bond yields rising to 20-year highs, a stronger U.S. dollar, and rising oil prices. However, she said that gold seems to have found some support above $4,000 an ounce, and "there are still many reasons to hold gold."

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One of the important factors supporting gold prices is that central bank and physical gold demand remain strong. Gower pointed out that central banks such as China and Poland continue to have physical demand for gold, and China's overall gold imports currently appear to be at least expected to hit the highest level since 2017, indicating that China still has a very strong demand for gold.

In addition, ETF buying also remained resilient. Gore pointed out that in an environment where the market originally expected the Federal Reserve to raise interest rates, or even actually raise interest rates, ETFs continued to increase their gold holdings, which was relatively unusual. She also believed that some central banks may have slowed down their purchases due to the rise in gold prices, but after the price of gold fell back this time, central banks may re-enter the market.

As for the recent selling pressure on gold prices, Gore believes that part of it may come from algorithmic trading funds. She said that this type of fund was a seller from the second quarter to July of this year, turned to establishing long positions in August, and may reverse again in the near future; some technical signals also came under pressure simultaneously on Monday, so a large part of the recent selling pressure may come from algorithmic trading.

Gower also pointed out that doubts about long-term government debt and fiscal sustainability remain important supporting factors for gold. If there is more intervention in the long-dated bond market, pushing yields back down, or if oil prices fall, it could improve the environment for gold again.

She also reminded that the relationship between the U.S. dollar and gold does not always show a fixed reverse trend. In the long run, the correlation between the two is close to zero, but in some periods there will be an inverse correlation; if the U.S. dollar and gold are both regarded as safe-haven assets by the market, they may also rise simultaneously. The current market is showing a stronger dollar and weaker gold, but she does not rule out subsequent changes in this relationship.

Gower reiterated Morgan Stanley's mid- to long-term view on gold, saying that based on a 12-month time frame, gold prices still have room to rise and are expected to regain $5,000 per ounce by the second half of 2027; therefore, when gold prices retracement, Morgan Stanley will seek to increase its gold position.

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