This is why the gold rally is likely to continue – Morgan Stanley

NEW YORK (October 23) Despite this week’s correction, gold prices are likely to extend their 2025 gains as Fed rate cuts and a weaker dollar spur central banks and ETFs to continue buying, according to commodity analysts at Morgan Stanley.

After breaking above $4,000 per ounce on Oct. 10, gold hit a wall at $4,380, and Oct. 21 saw the yellow metal post its largest daily loss in 12 years. 

“Still, gold has surged about 50% in 2025, cementing its status as one of 2025’s top-performing assets,” they wrote in a Wednesday note.

The analysts said the price increases are a reaction to this year’s major policy, geopolitical, and economic developments, including U.S. trade tariffs, Middle East conflict, worries over the Federal Reserve’s independence, and the U.S. government shutdown. 

Morgan Stanley Research expects the gold rally to continue, and they revised their 2026 price forecast up to $4,400 per ounce, a significant increase from the previous estimate of $3,313. This implies an additional gain of about 10% by the end of next year. 

“Investors are watching gold not just as a hedge against inflation, but as a barometer for everything from central bank policy to geopolitical risk,” said Morgan Stanley Metals & Mining Commodity Strategist Amy Gower. “We see further upside in gold, driven by a falling U.S. dollar, strong ETF buying, continued central bank purchases and a backdrop of uncertainty supporting demand for this safe-haven asset.”

Morgan Stanley Research sees ongoing support for the rally coming from a number of areas.  

“For the first time since 1996, gold now accounts for a larger share of central bank reserves than U.S. Treasuries—a powerful signal of confidence in the metal’s long-term value,” they noted. “Exchange-traded funds (ETFs) have also been strong buyers of gold, signaling renewed interest from institutional investors. ETFs backed by physical gold posted a record inflow of $26 billion in the third quarter. Their total assets under management ended the quarter at $472 billion, also a record.”

And after two years spent largely on the sidelines, retail investors are also joining the gold rush.

“As markets expect the U.S. dollar to weaken on prospects of slower growth in the world’s largest economy, many investors are shifting their safe-haven portfolios, moving from dollar-denominated assets to gold,” the analysts said. “Additionally, a weaker dollar makes gold more affordable for international buyers.”

Fed interest rate cuts are providing another boost to gold prices, with Morgan Stanley noting that since the 1990s, gold prices have averaged a 6% increase in the 60 days following the start of a Fed rate-cutting cycle.

“With all these factors, it probably comes as no surprise that gold is right up at the top of our order of preference among commodities,” Gower said. 

But despite their bullish outlook, the bank warned that gold could face some headwinds if the U.S. dollar remains stronger or if the Fed cuts less than expected. 

“There’s also the risk of demand destruction from higher prices,” Gower said. “For example, as the price of gold climbs higher, central banks will need to purchase less of it to achieve their reserve targets.”

She added that the jewelry market, which accounts for 40% of gold consumption, could also weigh down the gold price.  

“Jewelry demand is already showing signs of weakness,” Gower said. “Second-quarter gold jewelry demand was the worst since the third quarter of 2020 as consumers reacted to high prices.”

Record-high gold prices are also boosting gold producers’ cash flow and equity valuations.

“Some producers are presenting feasibility studies for new projects, expanding the life of their existing mines or resuming operations at units previously considered uneconomical,” the report noted

“However, several factors could lead to project delays or cancellations: difficulties in obtaining environmental and social licenses to operate, uncertainty around royalties and taxes, and constrained financial resources. In the U.S., no new mines have opened since 2002. 

And even though gold producers have only increased their mine supply by 0.3% per year since 2018, Morgan Stanley Research sees little chance of a new super-cycle of capital expenditures in the sector. 

“Profitable mining customers will continue to drive the de-bottlenecking of projects and underpin capex growth out to the end of the decade,” said Morgan Stanley Research analyst Michael Harleaux. “But a super-cycle in the form of a substantial greenfield uptick is unlikely, given the permitting and regulatory constraints.”

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