Three pillars could support gold after 3.8% drop this year, says Morgan Stanley

Despite gold sliding to near a seven-week low this week, Morgan Stanley remains positive on the metal over a 12-month horizon. Amy Gower, who leads metals and mining strategy at the firm, pointed to three factors that may bolster prices.

On Thursday, spot gold was trading around $4,176, following a sharp decline on Monday. So far in 2026, the precious metal has fallen roughly 3.8%.

Central Banks and China Keep the Physical Bid Alive

The first factor Gower highlighted is physical demand. Data from the World Gold Council (WGC) shows central banks purchased a net 23 metric tons in July, with China buying 20 tons and Poland 8 tons.

In August, Beijing acquired roughly 20.2 tons, its biggest monthly increase since October 2023. Demand from China is not limited to the central bank.

Including private and institutional buyers, China's total gold imports exceeded 1,000 metric tons in the first eight months of 2026. Gower said to CNBC that at this rate, imports are heading for the highest annual figure since 2017.

“China seems to have this very strong appetite for gold,” she said.

Why Gold’s Next Move Could Come From Bonds and Barrels

Gower admitted that elevated bond yields are the primary headwind for non-yielding gold. Her second support factor is the possibility of intervention in the long-dated bond market, which could bring yields down.

“What if we get more intervention in that long-dated bond market and then you get yields coming back down?” she stated.

The third element connects oil prices to the interest rate narrative. Reports indicate that U.S. and Iranian officials are engaged in separate mediated discussions regarding the seven-month Middle East conflict.

If the conflict de-escalates quickly, oil could decline, reducing inflation expectations and thereby restraining any rise in rates and yields.

Gold has already benefited from softer inflation data. The U.S. PCE inflation rate eased to 3.4% in August, and within minutes of Wednesday's data release, the metal gained roughly $20.

While Gower anticipates volatility surrounding future Federal Reserve meetings and economic data, she maintains that a clear support level exists.

“We see $4,000 as quite a strong floor,” the executive added.

Other institutions have highlighted downside risks. Deutsche Bank analyst Michael Hsueh cautioned in June that three to four rate increases by the Fed could push gold down to around $3,800.

Before the Fed's October 27-28 meeting, two data points will challenge gold's resilience. The September employment report is due on Friday, with the September CPI figures following on October 14.