Morgan Stanley Lowers Gold Yearly Target Price to $5200

Since the outbreak of the conflict in Iran, the status of gold as a traditional safe-haven asset is facing a severe challenge. Despite the ongoing geopolitical tensions, gold prices have not seen the expected surge, but are instead being pressured by the shift in monetary policy expectations.

In March of this year, in the first month of the conflict, gold prices plunged by 14.5%, underperforming global stock markets and U.S. Treasuries for the same period. This unusual trend broke the historical norm that gold always outperforms the market in crises, leading investors to question its safe-haven credentials.

This weakness continued into April, when U.S. stocks had already rebounded to pre-conflict levels, gold prices remained low, recovering only about one-third of the lost ground. Currently, gold prices are highly correlated with U.S. Treasury trends, indicating that their sensitivity to real interest rates and monetary policy has far surpassed geopolitical risks.

Morgan Stanley Commodity StrategistAmy Gowerpoints out that the energy supply shock caused by the conflict has weakened market expectations for rate cuts. She believes that, due to high oil prices raising inflationary pressures, the Federal Reserve's policy response has become the core variable driving gold prices, largely overshadowing its safe-haven attributes.

From a capital perspective, the positioning adjustments of central banks and institutional investors also dealt a heavy blow to gold prices. Central banks that had been continuously buying gold hit the pause button in March, with the Central Bank of Turkey even selling 52 tons of gold within a month, and India postponed the approval of gold bar imports.

At the same time, gold exchange-traded funds shifted from buyers to sellers. Data show that such funds liquidated about 90 tons of gold in March, giving up most of the gains made since the beginning of the year. This collective divestment at the institutional level further intensified the downward pressure on the market.

However, there have been signs of market recovery recently. Some funds are repurchasing gold, and China has reported the largest monthly increase in gold reserves since early last year. As the US dollar exchange rate weakens, gold prices are attempting to consolidate a key resistance level of $4,700 per ounce.

Looking ahead, Morgan Stanley maintains its long-term bullish view on gold, expecting a year-end target price of $5,200, lower than the previous forecast of $5,700. This forecast is based on the assumption that the Fed will still cut rates once this year, believing that a policy shift will reactivate investors' demand for gold.