The precious metals market is entering an upward cycle driven by multiple positive factors, with gold and silver prices expected to exhibit divergent trends amid the Federal Reserve's interest rate cut cycle and changes in the macroeconomic environment.
According to a recent research report from Morgan Stanley, the precious metals market is experiencing an upward cycle driven by multiple positive factors, with gold and silver prices anticipated to show divergent trends during the Federal Reserve's interest rate cut cycle and changes in the macroeconomic environment. The analysis indicates that historical data shows precious metals typically exhibit significant increases following Federal Reserve rate cuts—gold has an average increase of 6% (with a maximum of 14%) within 60 days post-rate cut, while silver averages a 4% increase in the same period. This pattern provides important reference for the current market.
Figure 1
On the demand side, global gold ETFs have increased their holdings by approximately 440 tons this year, reversing the net outflow trend observed in the previous four years, indicating a resurgence in institutional demand for gold; silver ETF holdings increased by 127 million ounces during the same period, although the report cautions that speculative trading could lead to excessive price increases.
Figure 2
Notably, India's gold import data for July has shown signs of improvement. Although jewelry demand in the second quarter reached its lowest level since Q3 2020, expectations of increased consumption capacity due to local Goods and Services Tax (GST) reforms may lay the groundwork for a subsequent recovery in demand.
In terms of price predictions, Morgan Stanley has set a year-end target price for gold at $3,800 per ounce, with three core driving factors: the continued progression of the Federal Reserve's interest rate cuts, a potential further weakening of the U.S. dollar index (DXY), and a possible recovery in jewelry consumption in emerging markets.
Regarding silver, although analysts maintain a cautious outlook (target price of $40.9 per ounce), the contradiction between stable solar panel production and a 7% year-on-year contraction in Mexican mineral supply suggests a possibility for silver prices to exceed expectations.
Figure 3
The report particularly emphasizes that the strong negative correlation between gold and the U.S. dollar remains a key pricing logic. If the current trend of dollar index depreciation continues, it will directly benefit precious metals priced in dollars.
Figure 4
However, the report also highlights risks: while India's GST reforms may not directly benefit gold and silver, tax reductions in other sectors could indirectly enhance consumer purchasing power; furthermore, the business dealings between Morgan Stanley and related companies should also be considered by investors in their decision-making.
Overall, the research report suggests that gold's properties as a safe haven and a hedge against inflation during a rate-cutting cycle will support its price increase, while silver needs to find a balance between industrial demand and speculative sentiment. Investors should closely monitor the Federal Reserve's policy direction, the movement of the U.S. dollar, and signals of consumption recovery in the Indian market to seize structural opportunities in the precious metals market.
