Morgan Stanley: ETF Inflows Are Key to Gold and Silver Reversal, Fed Policy Is the Core Driver
N.R. Finch
Morgan Stanley's latest report names ETF inflows as the make-or-break variable for a gold and silver reversal, with the Fed avoiding another hike as the core trigger — gold fell 2.5% and silver 6.65% last week, yet Q4 targets still imply roughly 11% and 16% upside.
How much upside does Morgan Stanley see by Q4?
The bank's Q4 targets: gold at $4,450/oz, silver at $65.40/oz — roughly 11% and 16% above current prices.
This means → Morgan Stanley views the recent selloff as temporary pressure, not a trend reversal.
The core assumption: the Fed holds rates steady this year, then cuts twice next year. This runs counter to consensus, but recent CPI data showing cooling inflation lends it support.
Central banks keep buying — so why is gold still falling?
Central-bank demand is building a floor: the PBoC has bought gold for 20 consecutive months, with June purchases jumping to 14.9 tonnes — the highest since October 2023. Poland has added 63.6 tonnes year-to-date; Uzbekistan, 32.7 tonnes.
Prior selling pressure is fading — Turkey's May disposals dropped to 2.7 tonnes, and global net flows swung from 50.6 tonnes of net selling in March to net purchases of 21.5 tonnes in April and 41.2 tonnes in May.
In plain terms = more central-bank buyers, fewer sellers — yet gold still fell. The drag is coming from the other side: ETFs are absent.
Why are ETFs absent — and when might they return?
In 2025, ETFs accounted for roughly 20% of total gold demand, buying nearly 800 tonnes. In H1 2026, global gold-ETF holdings rose a net 18 tonnes only; June alone saw 74 tonnes of net outflows, with North America shedding 42 tonnes that month and 60.5 tonnes across the half.
Asian ETFs still posted net inflows of 69.7 tonnes in H1; Europe was also positive. This reflects a selloff concentrated among U.S. investors, not a global retreat.
Morgan Stanley notes that after Middle East conflicts pushed up inflation expectations, the opportunity cost of holding gold rose most sharply for U.S. investors. Historically, large-scale ETF inflows tend to begin only a few months before the Fed's first rate cut.
This means → the ETF return hinges on the Fed. Markets currently price in roughly 1.4 hikes by year-end, down from 1.7 at the start of last week — softer-than-expected June CPI drove the shift.
What are positioning and technicals saying?
COMEX gold net non-commercial longs — large speculators' bullish bets — have climbed since mid-May, reaching 194,000 contracts as of July 15, the highest since February.
But technicals remain a headwind: gold trades below its 200-day moving average, and the 50-day average crossed below the 200-day in mid-July — a "death cross" (a pattern where the short-term trend line drops below the long-term one, typically read as bearish).
In plain terms = speculators are adding long positions, but trend-following quant funds see the death cross and lean toward selling rallies rather than buying dips — two forces pulling in opposite directions.
Why is silver falling harder than gold?
Silver is down roughly 21% year-to-date, far exceeding gold's ~6% decline. The gold-silver ratio has rebounded from a January low of 46x to 70x.
The critical signal: silver's price correlation with copper has plunged from 95% in H2 2025 to near zero. This means → the market has stopped pricing silver as an industrial metal. Behind this is weakening industrial demand — especially from solar photovoltaics.
Solar PV accounted for 17% of silver demand in 2025, but PV-related silver consumption already fell 6% year-on-year that year; the Silver Institute forecasts a further 19% drop in 2026.
Silver-ETF holdings have fallen from a late-2025 peak of roughly 87 billion ounces to 78.4 billion ounces — a ~10% decline, notably steeper than gold's ~5% over the same period.
What does silver need for a real reversal?
Morgan Stanley holds its Q4 silver target at $65.40/oz, with a bull-case target of $97.
A reversal requires two conditions met simultaneously: Fed-hike expectations fading + industrial demand stabilizing. If both occur, silver's correlation with copper should rebuild.
In plain terms = gold needs just one signal — the Fed. Silver needs double verification: rates must turn *and* industrial demand — led by solar — must stop falling. That is why silver is the harder turnaround.
Content is for reference only, not financial advice.