Investing.com — Gold snapped a five-week winning streak on Friday, but the yellow metal’s bullish run is likely not over yet as tailwinds, including central bank demand, have more room to run, much like the tide of the outflow from funds traded on the gold exchange. starts spinning.
Gold prices rose 0.3% to $2,348.75 but suffered heavy losses earlier this week on easing tensions in the Middle East after Iran and Israel showed little willingness to escalate their tit-for-tat exchange.
The path for gold prices is expected to be choppy, but likely trending toward higher highs, rather than a reversal, Morgan Staley said. He predicts that the odds are more in favor of the bull case scenario, in which gold rises to $2,760 per ounce in the coming years. second half of the year, instead of the bear case scenario of a decline to $2,000 per ounce.
Strong demand for the yellow metal has given the country extra leverage to withstand the weight of rising real interest rates, which have a long history of hampering investor appetite for non-interest-bearing assets such as gold.
Gold is typically expected to have a “negative correlation with real interest rates because it loses relative competitiveness in investor portfolios as real interest rates rise,” according to Morgan Stanley, but now appears to have a positive correlation with real interest rates on a three-month basis to be considered fundamental. drivers have dominated the price action.
Central bank bullion purchases led by the People’s Bank of China, demand for safe havens amid rising geopolitical tensions, and growing demand for an inflation hedge have helped push gold higher.
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These bullish factors, especially central bank purchases, are unlikely to disappear anytime soon.
Gold consumption in China rose 5.94% from a year earlier to 308.91 tonnes in the first quarter of the year, the China Gold Association said on Friday, driven by surging demand for safe havens.
PBoC bullion purchases continued for the 17th straight month in March, bringing total gold reserves to 2,262.67 tonnes by the end of the first quarter, according to the China Gold Association.
Meanwhile, demand for ETFs has been weak during gold’s rally as outflows have continued, but the tide of outflows is starting to turn, according to Morgan Stanley.
According to the World Gold Council, US and Asian ETFs have seen inflows since mid-March, but these have been offset by outflows in Europe.
While these fundamental positives show no signs of letting up, the macroeconomic outlook, with US inflation appearing to be more persistent and yields elevated for longer, has some questioning gold’s next move.
“But if the data remains strong, raising concerns about more persistent inflation and heightened geopolitical risk, gold may remain well-commanded regardless,” Morgan Stanley said, adding that when a rate cut is implemented, it is often a positive. is a catalyst for inflation. gold.
