Morgan Stanley - one of the world's largest investment and financial service banking groups believes that gold prices will hardly achieve the target of increasing to 5,200 USD/ounce in the second half of 2026 if there is no significant recovery of capital flows into gold ETF funds.
In a report released earlier this week, commodity strategists Amy Gower and Martijn Rats said that demand from central banks may continue to remain stable, but the missing factor for the gold market today is investment capital through ETFs.
The missing piece is the demand from ETF funds. This capital flow is likely to remain very sensitive to the Fed's policy roadmap, real yields and the diễn biến of the USD," the two experts said.
Morgan Stanley still maintains a positive view on the long-term outlook for gold. The bank believes that tensions in the Middle East showing signs of cooling down along with falling oil prices will help ease inflation expectations in the near future.
However, experts warn that the tough stance of the US Federal Reserve (Fed) at last week's meeting has made the market begin to consider the possibility that interest rates will remain high for a longer time, even not excluding the possibility that the Fed will continue to raise interest rates.
This increases the opportunity cost of holding gold - an asset that does not yield yields.
According to Morgan Stanley data, "long-term high" interest rate expectations have pushed the real yield of 10-year US government bonds significantly higher than in February. This development has led to a wave of capital withdrawal from gold ETFs recently and contributed to downward pressure on the precious metal.
In early May, Amy Gower reaffirmed her forecast that gold prices would end the year around 5,200 USD/ounce when she realized that the upward momentum of the market was still present.
However, she said she was not surprised when gold faced difficulties in recent months despite increasing geopolitical tensions.
The conflict has caused a shock to energy supplies and reduced expectations of US interest rate cuts. So it is not surprising that gold does not perform well as a safe haven asset," Ms. Gower said.
According to this expert, the sensitivity of gold to monetary policy has now become the main factor dominating prices, overwhelming the traditional role of precious metals as a defensive tool against geopolitical risks and inflation.
Morgan Stanley believes that high energy prices are increasing inflationary pressure, forcing the Fed to reconsider its monetary easing plan. As a result, the market is gradually eliminating expectations of interest rate cuts this year.
As of May, Morgan Stanley still expects the Fed to cut interest rates at least once this year and that will support gold prices.
This bank once predicted that the Fed could cut interest rates once in January 2027 and continue to cut again in March 2027.
That will be beneficial for gold, because ETF funds' buying decisions are particularly sensitive to policy signals and gold prices are currently returning to a close correlation with real yields," Ms. Gower said.
However, if tensions in the Middle East persist, risks to the gold market will increase.
According to Ms. Gower, gold prices may be under pressure if the market begins to believe that the Fed will have to maintain higher interest rates for longer or even continue to raise interest rates.
In the opposite direction, even if geopolitical tensions are resolved, gold's price increase potential may also be limited because the current price level is already high, causing demand from ETFs, central banks and consumers to decline.
However, Morgan Stanley still believes that the long-term outlook for gold has not changed. To make the target of 5,200 USD/ounce a reality, the market needs to witness the return of ETF capital - a factor considered the decisive key for the next price increase phase of the precious metal.
