Gold experienced a brief pause in its five-week winning streak on Friday, but market sentiment suggests that the yellow metal’s bullish trajectory is far from over. Despite recent losses linked to easing Middle East tensions between Iran and Israel, gold prices rebounded by 0.3% to reach $2,348.75.
Looking ahead, Morgan Stanley projects a choppy yet upward trajectory for gold prices, leaning towards higher highs rather than a reversal. The firm’s bull case scenario anticipates gold rising to $2,760 an ounce in the second half of the year, highlighting the resilience of gold demand against rising real interest rates.
Historically, rising real interest rates have dampened investor interest in non-interest-bearing assets like gold. However, gold is currently displaying a positive correlation with real yields over a 3-month period, driven by strong fundamental drivers dominating price action.
Central bank purchases of bullion, notably led by the People’s Bank of China, alongside increasing demand for safe-haven assets amid geopolitical tensions and inflation hedging, have underpinned gold’s ascent.
In China, gold consumption surged by 5.94% year-on-year to 308.91 tons in the first quarter of the year, driven by heightened safe-haven demand. The People’s Bank of China continued its bullion purchases for the 17th consecutive month in March, boosting its total gold reserves to 2,262.67 tons by the end of Q1.
Despite ongoing weakness in ETF demand during gold’s rally, the tide of outflows is beginning to reverse. Recent data from the World Gold Council indicates inflows into U.S. and Asian ETFs since mid-March, counterbalancing outflows in Europe.
Looking ahead, the macroeconomic outlook, characterized by persistent U.S. inflation and expectations of prolonged higher interest rates, presents a supportive backdrop for gold. Morgan Stanley notes that if economic data continues to signal persistent inflation concerns and heightened geopolitical risks, gold is likely to remain well-supported. Additionally, an earlier-than-expected rate cut could serve as another positive catalyst for gold prices.
