Morgan Stanley Sees Gold Breaking $5,000 by 2027 Despite Q3 Weakness

Morgan Stanley's head of metals and mining strategy, Amy Gower, remains bullish on gold despite its recent pullback. She believes that the current correction offers investors a chance to position themselves ahead of future growth. The precious metal is facing multiple headwinds, including long-dated bond yields at 20-year highs, a stronger dollar, rising oil prices, and investor fatigue from last year's rally.

Gower points out that central banks such as China and Poland continue to purchase gold strongly, with China's broad gold imports on track for their highest level since 2017. This physical demand is a key factor supporting the price of gold, which Gower views as having a 'quite strong floor' at $4,000.

She notes that much of the recent selling pressure has come from algorithmic trading funds, which may have turned bearish again after flipping to buyers in August. Gold ETFs, on the other hand, have been adding positions against the trend, which is unusual in a market that anticipated and then saw rate hikes.

Gower also cautions that the correlation between gold and the dollar can shift at any time, despite its recent inverse relationship regaining dominance. She explicitly rejects the notion that silver's rally was 'all hype', citing real physical demand and ETF buying last year as key drivers of the price increase.