Morgan Stanley Predicts 5% Gold Price Rise by 2025 Amid Fed Rate Cut Expectations

Morgan Stanley has expressed a strong bullish outlook on gold prices, with the potential for a rate cut by the Federal Reserve serving as a key catalyst. The firm anticipates that gold prices will rise by approximately 5% by 2025, reaching a high of 3,800 dollars per ounce by the end of the year. This optimistic view is supported by the market's expectation of a rate cut by the Federal Reserve following the release of the August CPI data in the United States. The firm believes that a rate cut would significantly impact global capital flows, potentially benefiting emerging markets and driving up gold prices. The firm's analysis is based on the current economic environment and the potential for further monetary policy adjustments by the Federal Reserve.

This bullish outlook on gold is not isolated. Central banks and institutions have shown unprecedented confidence in the metal. This year, COMEX gold prices have risen nearly 39%, and silver prices have surged over 42%. This significant increase has caught the attention of many investors and analysts. The firm's metal and mining commodities strategist noted that gold is not just a safe-haven asset but also a barometer of the global economy and financial markets. The strategist highlighted that central banks continue to engage in large-scale gold purchases, with gold now constituting a higher proportion of central bank reserves than government bonds. This trend, not seen since 1996, underscores the long-term value that central banks place on gold.

Additionally, gold-backed exchange-traded funds (ETFs) saw inflows of 500 million dollars in August, marking the highest inflow since 2020. This indicates a renewed interest from institutional investors. Despite high inflation rates in major economies, gold's appeal remains strong. Investors anticipate that central banks may soon be forced to lower interest rates, which could further boost gold prices. The strategist emphasized that while many major economies still face high inflation, the prospect of lower interest rates makes gold an attractive investment. The firm's economists predict that the Federal Reserve will cut rates at its September meeting, the first cut since December 2024. Historical data shows that gold and silver prices typically rise by 6% and 4%, respectively, within 60 days of the start of a rate-cutting cycle. This is because lower interest rates make non-yielding assets like gold more competitive.

However, the outlook for gold prices is not without risks. The strategist cautioned that while gold is often seen as a hedge against economic instability, jewelry demand, which accounts for 40% of gold demand and 34% of silver demand, remains a significant factor. Currently, global demand for gold and silver jewelry is showing signs of weakness. The second quarter saw the worst gold jewelry demand since the third quarter of 2020, as high prices deterred consumers. Nevertheless, the firm's currency strategists predict that the dollar will continue to weaken, making gold and silver jewelry more affordable for consumers in other markets, such as India, a major consumer of gold and silver. India's gold and silver imports showed improvement in July, and planned reforms to its goods and services tax could boost demand ahead of festivals and wedding seasons.