In an interview, Amy Gower, Head of Metals and Mining Strategy at Morgan Stanley, offered a clear assessment: while gold does face short-term pressure, strong demand from ETFs and central banks suggests it could regain the $5,000 per ounce mark within the next year; more specifically, Morgan Stanley expects gold to break through this level in the second half of 2027. Regarding silver, she similarly doesn't believe the rise to $120 per ounce is merely speculation, but rather supported by genuine physical demand. In other words, short-term fluctuations haven't altered her positive view on the medium- to long-term trend of precious metals.

Short-term headwinds: Yields, the US dollar, and oil prices all exert downward pressure.

Gower acknowledges that the current environment is challenging for gold. Long-term bond yields have hit 20-year highs, the dollar has strengthened, and oil prices are also rising. These factors combined have left gold without a tailwind in the short term. There has also been significant building of gold positions, with many investors increasing their holdings in August, much of which was established near current levels. Therefore, when the market fell sharply like on Monday, these positions were quickly liquidated. Nevertheless, she emphasizes that gold appears to have found some support above $4,000 and believes it's necessary to question why this support has emerged and what other factors are at play.

Central bank buying and demand from major countries: strong support for gold.

Gower points out that physical demand from major Asian countries and central banks such as Poland remains very strong. Even looking only at broad gold imports from major Asian countries, Morgan Stanley believes they will reach their highest level since 2017, and possibly even longer. Major Asian countries seem to have a very, very strong appetite for gold. She also cautions that major Asian countries begin their Golden Week holiday on Thursday, so related buying may be quiet for a while, but we may see renewed participation after the holiday. This assessment means that central bank and Asian physical buying remain important support levels for gold.

Fiscal debt and oil price variables: the reasons for holding gold remain.

In addition to central bank demand, Gower also emphasized ongoing concerns about long-term government debt and fiscal sustainability. She raised the question: what would happen to gold if there were more intervention in the long-term bond market, followed by a decline in yields? What if oil prices fell? In her view, there are still many reasons to hold gold, and therefore $4,000 should be considered a fairly strong bottom. This bottom assessment is a key basis for Morgan Stanley's bullish outlook on gold despite short-term headwinds.

Who's Selling Off: Algorithmic Trading and Position Shakeout

When asked about the continued strength of sovereign and other long-term buying and the potential source of the recent sell-off, Gower stated that Morgan Stanley has seen considerable activity in algorithmic trading funds. These funds were sellers in the second quarter and into July, reversed their positions in August, and may be reversing again now. Looking at numerous technical signals, some of which were under pressure on Monday, she believes much of the sell-off is algorithmically driven. She also noted that ETFs have been increasing their gold holdings, which is unusual in a market where the Fed's rate hikes were anticipated before they materialized, suggesting that ETF demand is actually more robust. As for central banks, she suspects some may have bought due to a slowdown in the rally, but is more likely to re-enter the market during this pullback.

US Dollar and US Treasuries: Correlation is Shifting

The interviewer noted that, based on charts, the correlation between gold and the US dollar is more pronounced than that between gold and the bond market, with even larger breaks in the 10-year Treasury yield than in gold-dollar trading. Gower agrees, noting that the recent correlations between gold and the US dollar, and between gold and the bond market, appear to be shifting. She said that in the long term, the correlation between gold and the US dollar is close to zero, but periods of negative correlation are possible. A stronger dollar obviously makes gold more expensive for non-dollar holders; however, if both are used as safe-haven assets, they can actually rise together. Currently, the market seems to be trading in a stronger dollar and weaker gold, but she wouldn't be surprised if this relationship also changes.

Silver at $120: Real Demand Exists Beyond Speculation

Gower then discussed silver. She stated that silver has traditionally been a high-beta trader of gold, but it also has a copper-like aspect due to its use in electronics, data centers, solar panels, and more. Over the past six months, silver's correlation with gold has been far higher than its correlation with copper, unlike last year when industrial demand was very strong. This year, industrial demand is much weaker, largely due to last year's high prices and volatility, which has driven conservatism. When asked if last year's extreme price surge in silver was entirely driven by speculation, Gower disagreed. She believes there was genuine physical demand, driven by strong demand from solar energy and significant ETF buying. However, she also acknowledged that silver did experience some over-extension, falling very quickly when prices did. Therefore, the prediction of silver reaching $120 per ounce cannot be simply attributed to speculation; genuine demand is an undeniable factor.

Morgan Stanley's conclusion: Upside potential over 12 months; consider buying on pullbacks.

Gower stated that while gold prices may face downward pressure in the short term, Morgan Stanley believes there is still room for further gains in the coming months. She explicitly stated that Morgan Stanley does see upside potential for gold on a 12-month perspective and anticipates prices returning above $5,000 per ounce in the second half of 2027. Therefore, Morgan Stanley would consider increasing its gold positions during these pullbacks. Overall, Gower's core view is not to deny short-term pressure on gold, but rather to emphasize that the pressure primarily stems from tactical factors such as positioning, algorithmic trading, the US dollar, and yields, while medium- to long-term support remains from central bank buying, physical demand from major Asian countries, fiscal debt concerns, and the resilience of ETFs. She considers $4,000 a fairly strong bottom and expects gold prices to break through $5,000 in the second half of 2027; regarding silver, she does not believe the rise to $120 is merely speculative, but rather based on genuine physical demand. For investors, this pullback is more likely a window to reassess and reposition in precious metals than the end of a long-term trend. At 09:17 Beijing time, spot gold was trading at $4160.49 per ounce.