Morgan Stanley Predicts 6% Gold Gain, 4% Silver Rise as Fed Cuts Rates

Morgan Stanley has recently released a research report indicating that the precious metals market is entering a bullish cycle driven by multiple favorable factors. The report suggests that gold and silver prices are poised to rise amid the Federal Reserve's interest rate cutting cycle and changing macroeconomic conditions. Historical data shows that precious metals typically experience significant gains following interest rate cuts, with gold rising an average of 6% within 60 days post-cut, and silver increasing by an average of 4% during the same period. This historical trend provides valuable insights for the current market.

On the demand side, global gold ETFs have increased their holdings by approximately 440 tons this year, reversing the net outflow trend observed over the past four years. This increase reflects a growing institutional demand for gold. Similarly, silver ETF holdings have risen by 127 million ounces, although there is a cautionary note about the potential for speculative trading to drive prices beyond sustainable levels.

The report also notes that India's July gold import data shows signs of improvement, despite the second quarter's jewelry demand hitting a new low since the third quarter of 2020. The Goods and Services Tax (GST) reform in India is expected to boost consumer spending, potentially driving demand for precious metals in the future.

Morgan Stanley has set a year-end target price for gold at 3800 dollars per ounce, driven by the continued progress of the Federal Reserve's interest rate cutting cycle, the potential further weakening of the US Dollar Index (DXY), and the potential recovery of jewelry consumption in emerging markets. For silver, while analysts maintain a cautious stance with a target price of 40.9 dollars per ounce, the stable production of solar panels and the 7% year-on-year contraction in Mexican mineral supply suggest that silver prices could experience unexpected gains.

The report emphasizes the strong negative correlation between gold and the US dollar as a key pricing factor. If the dollar continues its depreciation trend, it will directly benefit gold, which is priced in dollars. Additionally, the report notes that while the GST reform in India may not directly benefit gold and silver, the broader tax reductions could indirectly boost consumer spending, potentially driving demand for these precious metals.

However, the report also highlights potential risks. The GST reform in India, while not directly benefiting gold and silver, could indirectly boost consumer spending through tax reductions in other sectors. Additionally, investors should consider Morgan Stanley's business relationships with relevant companies when making investment decisions.

Overall, the report suggests that gold's safe-haven and inflation-hedging properties will support its price increase during the interest rate cutting cycle. Silver, on the other hand, will need to balance industrial demand and speculative sentiment. Investors should closely monitor the Federal Reserve's policy direction, the trajectory of the dollar, and signals of consumer recovery in India to capitalize on the structural opportunities in the precious metals market.