Gold prices are on the brink of hitting new record highs, with Morgan Stanley forecasting a surge above $2,600 per ounce by the fourth quarter of 2024. This bullish outlook comes as gold has already risen 50% from its 2022 lows and 25% since mid-February, positioning the precious metal for a strong finish to the year.
Key Drivers of the Bullish Forecast
Morgan Stanley's strategists, led by Amy Gower, attribute the anticipated rise to several critical factors:
Central Bank Purchases: Central banks, particularly from developing nations such as China, Russia, India, South Africa, and Brazil, have been significantly increasing their gold reserves. These purchases have doubled in 2022/23 compared to previous trends, pushing prices higher.
Retail and Institutional Demand: There has been a notable increase in retail investment in gold bars and coins, particularly in China. This surge is complemented by steady inflows into gold exchange-traded funds (ETFs), especially from Europe, following the June rate cut. US ETFs are also expected to see similar inflows as rate cuts take effect, further supporting gold prices.
Global Turmoil and Safe-Haven Appeal: Ongoing global conflicts, including the Russia-Ukraine war and the Israel-Palestine tensions, have bolstered gold's appeal as a safe-haven asset. This environment has helped gold rise nearly 18% in the past seven months.
Economic Outlook: While there are mounting concerns about a potential US recession, Morgan Stanley's economists believe a soft landing is more likely. They anticipate that, should economic data weaken, the Federal Reserve will react decisively, potentially prompting further investment inflows into gold.
Market Dynamics and Price Predictions
Gold prices have been steadily climbing, recently pushing back above $2,400 per ounce. Morgan Stanley expects this upward momentum to continue, driven by both physical and financial market factors.
"COMEX net longs are at their highest since Q2 2022, but still 100,000 lots off all-time highs,” Gower's team noted, indicating room for further growth. The strategists argue that while the recent rally has been driven by physical demand, financial flows will drive the next leg higher. They predict that gold prices could reach $2,650 per ounce by Q4 2024.
Regional Insights and Consumption Patterns
Despite the overall positive outlook, there are regional variations in gold demand. China's central bank paused its gold purchases in May after 18 consecutive months, and India's jewelry demand has softened. However, strong bar and coin consumption in China continues to support overall demand.
In June, gold withdrawals from the Shanghai Gold Exchange were down 31% year-over-year, reflecting weak jewelry demand. This contrasts with the robust demand for bars and coins, indicating a shift in consumer behavior towards investment-grade gold.
Conclusion
Morgan Stanley’s forecast underscores the complex dynamics at play in the gold market. Central bank purchases, retail and institutional investment, and global economic factors are all contributing to a bullish outlook for gold. As global turmoil continues and economic uncertainties persist, gold's role as a safe-haven asset is likely to drive its price above $2,600 per ounce by the end of 2024.