Amy Gower, Head of Metals & Mining Strategy at Morgan Stanley, said although gold is currently pressured by rising interest rates, a stronger US dollar and higher oil prices, buying from ETFs and central banks remains solid. Gold is expected to climb back above $4,000 per ounce within one year, and the $4,000 level is likely to form strong support.

Gold Faces Short-Term Pressure But Finds Support Near $4,000

In an interview with CNBC, Gower admitted the current gold market environment is tough. She noted long-term Treasury yields have climbed to a 20-year high, the US dollar is strengthening, and oil prices remain firm, all weighing on gold prices.

She also mentioned that the market previously saw a notable build-up in gold positions, especially in August. Many investors added positions near current levels, so those positions were quickly flushed out when the market suffered a sharp drop on Monday. Still, she believes gold can find support above $4,000, which shows other forces are at play.

"I think we should view $4,000 as quite a strong floor," Gower stated.

Central Bank and Chinese Demand Remain Key Pillars

Gower emphASIzed that physical demand from central banks stays very robust, especially buyers such as China and Poland. She pointed out that based on China’s overall gold imports, the volume this year is on track to hit at least the highest level since 2017, possibly even higher. She added China is approaching its Golden Week holiday, so buying interest may quiet down temporarily in the short run, yet demand may resume after the holiday.

She also noted peRSIstent market concerns over long-term government debt and fiscal sustainability. If there is more intervention in the long-dated bond market, yields pull back, or oil prices weaken, gold’s appeal as a safe-haven asset may rise further.

"I think there are still plenty of reasons to hold gold," she said.

Algorithmic Trading and ETF Purchases Impact Volatility

Regarding the source of the recent selloff, Gower said Morgan Stanley believes a large portion stems from algorithmic trading funds. She said such funds kept selling in Q2 and July before turning to buying in August, and the trend may have reversed again recently. She added that Monday’s drop put pressure on some technical indicators, so much of the selling appears tied to algorithmic trading.

She also pointed out ETFs are actually still adding gold holdings, which is unusual in a market that typically prices in Fed rate hikes in advance, showing liquidity conditions remain relatively stable. She suspects some central banks may have slowed purchases amid gold price rallies, yet those buyers may re-enter as pullbacks emerge.

Gold-Dollar Correlation Strengthens Temporarily

When asked about shifting correlations between gold, the US dollar and bonds, Gower said gold’s linkage with the US dollar has appeared more pronounced lately than its correlation with the bond market. In the long run, she thinks gold’s correlation with the US dollar is close to zero, though the two can show clear negative correlation in certain periods.

She explained that a stronger US dollar raises gold’s purchase cost for non-dollar holders and is therefore usually bearish for gold. However, both assets can rally together if they are treated as safe havens. For now, the market is trading the combination of a stronger dollar and weaker gold, yet she does not rule out future shifts in this relationship.

Silver’s Rally Is Not Pure Speculation

When talking about silver, Gower said silver normally acts as a high-beta veRSIon of gold while also carrying copper-style industrial exposure, as it is widely used in electronics, data centers and solar panels. Over the past six months, silver’s correlation with gold has been markedly higher than its correlation with copper, a contrast to last year. Industrial demand was very strong last year, but has weakened noticeably this year, partly because high prices and extreme volatility last year prompted silver conservation and substitution.

Gower disagrees that silver’s extreme rally last year was driven purely by speculation. She said there was genuine physical demand back then, including substantial growth in the solar sector and ETF inflows, but prices overshot and then tumbled rapidly during the pullback.

Morgan Stanley Remains Bullish On Gold

Although gold may remain under pressure in the near term, Gower said Morgan Stanley stays bullish on gold over the 12-month horizon and forecasts gold to climb back above $5,000 per ounce in the second half of 2027. She suggested investors consider accumulating gold on dips during the current correction.

From a market logic perspective, if long-dated US Treasury yields keep fluctuating at high levels and the US dollar stays strong, gold’s short-term volatility may intensify. Nevertheless, central bank gold purchases, ETF inflows and concerns over fiscal and debt sustainability may still offer medium-to-long term support for gold. As for silver, its elasticity merits attention if industrial demand recovers alongside a gold rally.