Gold Finds Support at $4,000 Amid Central Bank Buying and Oil Concerns

Morgan Stanley strategist Amy Gower is standing firm on her bullish outlook for gold. Despite the metal's recent slide to a seven-week low, Gower sees $4,000 an ounce as a strong floor, citing three key supports.

The first factor is central bank buying. In July, official buyers purchased a net 23 metric tons of gold, with China taking about 20 tons and Poland about 8. Gower notes that China's gold imports are on track to be the highest since 2017.

The second support is government debt. With markets concerned over long-term public debt and fiscal sustainability, Gower acknowledges higher bond yields remain a challenge for gold, which pays no interest. However, she suggests that further intervention in long-dated bond markets or a change in inflation expectations could bring yields back down and work in gold's favour.

The third factor is oil. A rapid de-escalation of the Middle East conflict could pull oil prices lower, easing inflation expectations and helping contain upward pressure on interest rates and bond yields.