Gold price at $5,000, silver price at $120? Morgan Stanley: See you in the second half of 2027, pullbacks may be buying opportunities

Huitong Network, October 1st— Morgan Stanley’s Gower points out that gold is being suppressed in the short term by the US dollar, yields, and algorithmic trading, but central bank and ETF demand remain strong. The $4,000 support is solid, and she expects the price to break above $5,000 in the second half of 2027; as for silver, an increase to $120 is not just hype but supported by real physical demand.

Amy Gower, Head of Metals & Mining Strategy at Morgan Stanley, made a clear judgment in an interview: In the short term, gold does face pressure, but ETF and central bank demand remain strong, and the gold price is expected to climb back above $5,000 per ounce within the next year. More specifically, Morgan Stanley expects the gold price to surpass this level in the second half of 2027. She also does not believe that silver’s potential rise to $120 per ounce is just speculation; there’s genuine physical demand behind it. In other words, short-term volatility hasn’t changed her positive view on the medium- and long-term trend for precious metals.

Short-term Headwinds: Yields, the Dollar, and Oil Prices Apply Pressure Simultaneously

Gower admits that the current environment is challenging for gold. Long-term bond yields have reached 20-year highs, the US dollar is strengthening, and oil prices are also on the rise. Combined, these factors have left gold without much tailwind in the short term. The market has also seen a sharp increase in gold positions, with many investors increasing their holdings in August, and much of this was established near current levels. So when the market falls sharply, as it did on Monday, these positions are quickly washed out. Nevertheless, she emphasizes that gold seems to have found some support above $4,000 and says it’s important to ask why such support exists and what other factors are at play.

Central Bank Purchases and Major Country Demand: Hard Support for Gold

Gower notes that physical demand from Asian major economies and central banks like Poland remains very strong. Even looking only at the broader gold imports of Asian powers, Morgan Stanley estimates these will reach at least the highest levels since 2017, if not longer. Asian countries seem to have a very, very strong appetite for gold. She also reminds us that Asian countries begin their Golden Week holiday on Thursday, so related buying may go quiet for a while, but we could see re-engagement when the holiday ends. This judgment means that central banks and Asian physical buying remain important support forces for gold.

Fiscal Debt and Oil Price Factors: Reasons to Hold Gold Remain

In addition to central bank demand, Gower also emphasized the persistent concerns over long-term government debt and fiscal sustainability. She raised the question: If the long-term bond market saw more intervention and yields subsequently fell, what would happen to gold? What if oil prices went lower? In her view, there are still many reasons to hold gold, so $4,000 should be seen as a quite strong bottom. This bottom judgment is a key reason why Morgan Stanley remains positive on gold despite short-term headwinds.

Who is Selling: Algorithmic Trading and Position Shakeouts

When asked, with sovereign and other long-term buying remaining robust, where the recent selling might be coming from, Gower said that Morgan Stanley has seen significant activity from algorithmic trading funds. These funds were sellers in Q2 and going into July, flipped their positions in August, and now may be flipping again. If you look at a lot of technical signals, some of them also came under pressure on Monday, so she thinks much of the selling is algorithm-driven. She also notes that exchange-traded funds have been increasing their gold holdings, which is unusual in a market that first anticipates, then realizes, Fed rate hikes—indicating ETF demand is actually more resilient. As for central banks, she suspects some may have bought as the rally slowed, but are more likely to re-enter during this round of pullbacks.

The Dollar and US Treasuries: Correlation is Shifting Gears

The interviewer mentioned that, judging from the charts, the correlation between gold and the US dollar is more pronounced than that between gold and the bond market; the 10-year Treasury yield breakout has had an even bigger impact than US dollar/gold trade. Gower agrees that recently the correlation between gold and the dollar, and gold and the bond market, seems to be shifting. She says that over the long run, the correlation between gold and the dollar is close to zero, but negative correlation periods can occur. A stronger dollar obviously makes gold more expensive for non-dollar holders; however, when both serve as safe haven assets, they can also move higher together. The current market seems to trade like a strong dollar, weak gold, but she would not be surprised if this relationship changes, too.

Silver at $120: Real Demand Beyond Hype

Gower then talked about silver. She noted that silver is traditionally a high-beta gold trade, but there’s also the copper angle as it is used in electronics, data centers, solar panels, and more. Over the past six months, the correlation between silver and gold has far exceeded that with copper—unlike last year, when industrial demand was very strong. This year, industrial demand is much weaker, largely related to last year’s high prices and volatility, which drove resource saving. When asked whether last year’s extreme surge in silver prices was all hype-driven, Gower disagreed. She believes there was genuine physical demand, with a strong boost from solar and substantial ETF buying last year. However, she also acknowledged that silver does tend to overextend, and falls sharply when prices drop. Thus, the narrative of silver reaching $120 per ounce cannot simply be blamed on speculation—real demand is a vital factor.

Morgan Stanley Conclusion: Upside in 12 Months, Consider Adding on Pullbacks

Gower states that while gold prices may be under pressure in the short term, Morgan Stanley believes there’s still room for further upside in the coming months. She makes it clear: Morgan Stanley does indeed see upside for gold over a 12-month horizon and expects prices to return above $5,000 per ounce in the second half of 2027. As a result, Morgan Stanley will consider adding to gold positions during these pullbacks.

In summary, Gower’s main view is not to deny gold’s short-term pressure, but to emphasize that the pressure mainly comes from positioning, algorithmic trading, the US dollar, and yields—tactical factors—while medium- and long-term support still comes from central bank purchases, physical demand from Asian economies, fiscal debt concerns, and resilient ETFs. She regards $4,000 as a rather strong bottom and expects the gold price to break through $5,000 in the second half of 2027; as for silver, she does not see $120 as just speculation but as solidly backed by real physical demand. For investors, this round of pullbacks is more likely a window to reassess and position in precious metals, rather than a termination of the long-term trend.

At 09:17 Beijing time, spot gold is quoted at $4,160.49 per ounce.