Gold has lost some of its shine lately. But according to Morgan Stanley, the recent selloff hasn’t erased the reasons investors were buying. All of which also creates opportunity in down, but not out, gold stocks, such as Newmont Corporation (NYSE: NEM), Agnico Eagle Mines (NYSE: AEM), Royal Gold (NASDAQ: RGLD), and Barrick Mining Corp. (NYSE: B).
Rising bond yields are making interest-paying investments more attractive. At the same time, central bank buying and concerns about government debt continue to support the longer-term investment case for gold.
Amy Gower, head of metals and mining strategy for Morgan Stanley (NYSE: MS), remains positive on the yellow metal over the next 12 months. Her argument comes down to three factors: strong physical demand, uncertainty surrounding government finances, and the possibility that today’s pressure from interest rates eventually eases.
Central Banks Are Still Buying
One of the most powerful catalysts supporting gold is central-bank demand. According to figures cited by the World Gold Council (WGC), global central banks purchased an estimated 289 metric tonnes of gold during the second quarter. They reportedly added another 23 tonnes in July. The WGC added that emerging-market central banks have been especially active, with China and Poland adding about 20 tonnes and eight tonnes, respectively.
China’s appetite extends beyond its central bank. The country’s total gold imports, which include private and institutional demand, exceeded 1,000 metric tons during the first eight months of the year, according to the council. Gower said Chinese gold imports were on track for their highest level since 2017.
That demand matters because central-bank purchases can provide a relatively steady source of buying even when investor sentiment changes. It also suggests that the forces supporting gold extend beyond short-term trading in futures and exchange-traded funds.
The price could also benefit from concerns surrounding government spending, rising debt levels and the de-dollarization by some countries. In addition, Greenlight Capital founder David Einhorn is bullish. As reported by GoldSilver.com, Einhorn believes gold could “significantly outperform” the Nasdaq over the next three to five years. His outlook is based partly on concerns about loose U.S. fiscal policy and the continuing global trend toward de-dollarization.
For gold investors, those trends create a potentially important distinction between short-term price pressure and the longer-term demand picture. Higher yields can make gold less attractive in the near term, but they do not necessarily eliminate the reasons central banks and other investors hold the metal.
In short, the longer-term case is still strong, despite rising interest rates. Central banks are still accumulating the metal, government debt continues to rise, and investors remain concerned about inflation, currency stability, and geopolitical risk. If those trends persist, Goldman Sachs’ $5,400 forecast may not be as aggressive as it initially appears.
Lower Oil Prices Could Help
Oil is another variable worth watching.
A rapid easing of the Middle East conflict could help bring energy prices down. In turn, cheaper oil could reduce inflation pressure and ease concerns that interest rates need to move higher.
That could provide some breathing room.
The relationship between oil, inflation, and gold is not straightforward, but a sustained decline in energy prices could change the broader macroeconomic backdrop. If inflation cools without a major deterioration in economic growth, markets could begin pricing in less pressure on interest rates, potentially removing one of the metal’s current headwinds.
The sequence isn’t guaranteed. Lower energy prices would not automatically produce lower bond yields, and easing geopolitical tensions could also reduce demand for traditional havens.
Nevertheless, Gower’s point is that investors should consider how changes in oil prices could alter the interest-rate outlook.
What Investors Should Watch Next
Gower views $4,000 as an area of strong potential support. Investors should treat that as an analyst’s assessment, rather than a guaranteed price floor. Economic releases, Federal Reserve decisions, and movements in Treasury yields could all keep prices volatile through the final quarter of 2026.
That makes the next several months particularly important. A stabilization in Treasury yields, continued central-bank purchases, or evidence of resilient physical demand could help determine whether the recent pullback becomes a longer consolidation or the beginning of another move higher.
The longer-term argument is more patient. Central banks are still buying, Chinese demand remains substantial, and concerns about government finances haven’t disappeared.
Gold doesn’t need every development to work in its favor to regain momentum. But investors will want evidence that physical demand remains resilient and pressure from yields is easing.
For now, Morgan Stanley sees enough support to remain positive over a 12-month horizon, even if getting there involves further uncomfortable swings.
Source: APMEX
