Morgan Stanley commodity strategists stated in a Monday research note that gold will face difficulty reaching $5,200 per ounce in the second half of 2026 without meaningful ETF inflow recovery. Analysts Amy Gower and Martijn Rats attributed this challenge to the Federal Reserve's hawkish tone at Wednesday's meeting, which raised expectations for prolonged higher interest rates and increased the opportunity cost of holding non-yielding assets. The investment bank noted that easing Middle East tensions and lower oil prices could reduce inflation expectations long-term, but current higher-for-longer rate expectations have driven U.S. 10-year real yields above February levels, prompting recent net outflows from gold ETFs.
Real Yields Drive Gold ETF Outflows Above February Levels
"While central bank gold buying may resume regardless, ETF flows are more sensitive to changes in rate expectations," Gower and Rats wrote in the research note. "The missing piece is ETF demand, which is likely to remain sensitive to the Fed path, real yields and the dollar." Morgan Stanley shared data showing that higher-for-longer rate expectations have driven U.S. 10-year real yields well above February's levels, prompting recent net outflows from gold ETFs and contributing to gold's price slide. A rate hike is now back on the table, according to the analysts.
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Morgan Stanley Forecasts Rate Cuts in January and March 2027
In May, Morgan Stanley projected one rate cut in January followed by another rate cut in March 2027. "This should benefit gold, with ETF purchasing decisions particularly sensitive to policy signals and gold now realigning with real rates," Gower said. At the time, the bank was betting on at least one rate cut this year to support higher gold prices. On May 6, Gower reiterated her call for gold prices to end the year around $5,200 an ounce, stating she was not surprised the metal struggled in recent months despite heightened geopolitical uncertainty from the ongoing war in Iran.
Gower Warns Prolonged Iran Conflict Increases Gold Price Risks
"With the conflict triggering an energy supply shock that has reduced hopes for lower U.S. interest rates, it is not surprising that gold has struggled to work as a safe haven this time," Gower said. "Gold's sensitivity to monetary policy has taken over as the key price driver. This has overshadowed its safe-haven status and reduced its effectiveness as a hedge against both geopolitical and inflation risks." Gower added that the longer the Iran conflict continues, the greater the risks are for gold. "Gold prices may suffer if markets begin to anticipate prolonged rate holds or even hikes," she warned. "At the same time, upside in a resolution scenario could be limited, as already elevated prices may constrain demand from ETFs, central banks and consumers."
FAQ
What price target did Morgan Stanley set for gold in 2026?
Morgan Stanley analysts Amy Gower and Martijn Rats stated in a Monday research note that gold faces difficulty reaching $5,200 per ounce in the second half of 2026 without meaningful ETF inflow recovery. Gower reiterated this $5,200 target on May 6.
Why are gold ETFs experiencing outflows according to Morgan Stanley?
Morgan Stanley data showed that higher-for-longer rate expectations have driven U.S. 10-year real yields well above February's levels, prompting recent net outflows from gold ETFs. The Federal Reserve's hawkish tone at Wednesday's meeting raised expectations that interest rates could stay higher for longer, increasing the opportunity cost of holding non-yielding assets such as gold.
When does Morgan Stanley expect the Federal Reserve to cut rates?
In May, Morgan Stanley projected one rate cut in January followed by another rate cut in March 2027. The bank stated this timeline should benefit gold, with ETF purchasing decisions particularly sensitive to policy signals.
