While Gold ends its five-week winning streak, the bull market is still ongoing: MS

 

Although they suffered significant losses earlier this week due to a reduction in Middle East tensions, gold prices increased by 0.3% to $2,348.75 after Iran and Israel showed no desire to intensify their tit-for-tat exchange.  

The odds are more in favour of the bull case scenario, which sees gold rising to $2,760 an ounce in the second half of the year, than the bear case scenario, which sees gold falling to $2,000 an ounce, according to Morgan Staley. The path ahead for gold prices is expected to be choppy but likely leans towards higher highs, rather than a reversal.

With rising real interest rates, which have a history of dampening investor enthusiasm for non-interest bearing assets like gold, the yellow metal has more significance due to the strength of demand for it.

Morgan Stanley stated that although gold is normally expected to have a "negative correlation with real yields, given it loses relative competitiveness in investor portfolios as real yields rise," it is currently exhibiting a positive correlation with real yields on a 3-month basis as fundamental drivers have been driving price action.  

Gold has continued to rise due to central bank purchases of bullion, spearheaded by the People's Bank of China, the need for safe havens in the face of escalating geopolitical unrest, and the growing need for an inflation hedge.

These bullish elements are not going to go away very soon, especially central bank purchases. 

China Gold Association reported on Friday that the country's first-quarter gold consumption increased 5.94% year over year to 308.91 tonnes, primarily due to rising demand for safe haven assets.

According to the China Gold Association, the PBoC's bullion purchases continued in March for the seventeenth consecutive month, increasing its total gold reserve to 2,262.67 tonnes by the end of Q1.

ETF demand, however, has lagged throughout gold's advance due to ongoing outflows, but Morgan Stanley noted that the outflow trend is "starting to turn."

The World Gold Council reports inflows into ETFs for the United States and Asia since mid-March, but outflows from Europe have outweighed the inflows.

The macroeconomic picture, in which U.S. inflation appears to be more sticky, keeping rates higher for longer, has some people doubting gold's next move higher, even if these fundamentally favourable forces show no signs of slowing. 

"Yet gold may stay well bid regardless if data stays strong, driving concerns of more sticky inflation as well as elevated geopolitical risk," Morgan Stanley stated. They also added that a rate cut is frequently another bullish stimulus for gold.