Foreign media: Amy Gower, Morgan Stanley's leading commodity strategist, argues that oil prices, the Fed's path and the ETF's financial flows are the three main variables that currently determine the movement of gold. She noted that, if the ETF buys were to be delayed, gold, while still available, would be significantly more difficult to flush to $5200/ounce.
Middle East cooling first affects oil prices
A once-in-a-time market bet on the Middle East conflict would reinforce the risk-averse nature of gold, but this is not exactly the case. Morgan Stanley argued that the round was more like a supply shock, and that the upwards of oil prices could push up inflation expectations and bond yields and instead put pressure on gold.
The Bank also mentioned that during the conflict some hydrocarbon-importing countries were under pressure and that there had been a sale in individual countries. As the situation in the Middle East shows signs of deterioration, if oil prices fall, inflation and interest rates are also expected to cool, which is not necessarily bad for gold.
The ETF is the power of the central bank.
The official sector still provides an important support for gold. A survey by the World Gold Association shows that 45 per cent of respondents expect central banks to continue to increase their gold reserves for the next 12 months, indicating that such demand is more long-term.
Morgan Stanley emphasizes, however, that the central bank buys more bottom-up, and that it is ETF funds that really continue to push the price upward. The slowdown in gold imports in India and the increase in import tariffs in May also indicate that demand in kind is not fully robust.
Federal Reserve decision ETF Face
According to the Bank, the Fed remains the most critical variable in the short run. The latest FOMC statement and economic projections have been interpreted by the market as hawks, and the price of future interest rate paths has risen, with which the gold is under pressure.
The conductive logic is straightforward: the higher the interest rate, the higher the cost of holding gold, the higher the real rate of return, the lower the attractiveness of gold. Morgan Stanley states that ETF funds are more sensitive to interest rates and the United States dollar and that ETF is therefore more likely to continue to flow as soon as the Fed maintains its hawk stance.
According to the bank, for gold to be close to $5,200/ounces, at least two conditions would be required: the fall in oil prices would actually lead to inflation and interest rate expectations, and ETF funds would be converted to net purchases.