Gold futures hovered around $4,717 per ounce during premarket hours on Thursday and fell by 1.4% in the past five days. Gold prices crashed after a record rally and have been facing downward pressure after six weeks of sell-off amid the back-and-forth with the US-Iran war.
Gold prices fell further this week after US President Donald Trump said the US has extended the ceasefire with Iran. Amid these developments and gold price fluctuations, Morgan Stanley advised investors to cut back their expectations for the precious metal.
The brokerage reportedly trimmed itsgold price target for H2 to $5,200 per ounce from $5,700 earlier. However, the revised price target also implies a significant upside from current trading levels. Morgan Stanley also highlighted structural support from robust central bank demand, currency debasement concerns, and geopolitical tensions.
Elsewhere, Big Short's Michael Burry had predicted that the major price correction of precious metals is due to the Bitcoin crash, as corporations had to de-risk by selling profitable positions in tokenised gold and silver futures.
Tokenised metal futures are not backed by physical metal and can overwhelm trading in the physical market, which could cause 'a collateral death spiral,' Burry had stated. However, some experts believe the price pressure is also due to central banks around the world monetising holdings for emergency liquidity.
Financial experts are of the view that the gold sell-off could have been primarily driven by central banks monetising their gold reserves for emergency liquidity amid the US-Iran war and not only by investors engaged in panic-selling amid declining prices.
Bloomberg had reported thatTurkey's central bank is yet again tapping its gold reserves, which have declined by around 59 tonnes in recent weeks. Experts believe some of the gold was sold outright, while most was used to secure liras through swap agreements, which enable central banks to exchange gold for currency, with an agreement to trade back the currency for gold in the future.
According to World Gold Council data as of January-end, Turkey's central bank held 603 tonnes of gold. The country has been buying gold aggressively but has also monetised its reserves multiple times in recent years. In 2023, Turkey sold 159 tonnes of gold between March and May amid higher inflation, as domestic demand widened the government's current account deficit. In a bid to reduce the deficit, the central bank sold its gold to citizens but began recovering it soon after inflation cooled.
Rob Haworth, senior investment strategist at US Bank Wealth Management, said in a recent interview that there is a near-term risk that central banks will monetise their gold to meet emergency liquidity needs.
'It's not that central banks are price sensitive. They're not a hedge fund that marks their gold reserves to market. But right now, because of society's needs, they have a call for other assets that are more important and scarcer at this time,' he had explained.
Source: International Business Times UK
