Morgan Stanley: Central banks are accelerating gold buying, but ETFs are absent; gold and silver rebounds need to wait for renewed buying demand

Deep Tide TechFlow news, citing a flow research report, says Morgan Stanley’s July 20 precious metals report notes that central banks’ gold purchases are accelerating: China bought 14.9 tons of gold in June, the largest single-month increase since October 2023. This was the 20th consecutive month of buying. This year, China has accumulated purchases of 40.1 tons, already exceeding last year’s full-year total. Poland and Uzbekistan also increased their holdings at the same time. However, gold ETFs saw outflows of 74 tons in June, with North America as the main shipment destination. From the start of the year to date, North America ETFs net sold 60.5 tons. Central bank buying and ETF selling offset each other, keeping the gold price stuck near $4,000. Silver is down about 23% this year, far more than gold’s 8%. Weakness in silver used in photovoltaics, combined with ETF sales, creates double pressure.

Morgan Stanley believes the key to any rebound in gold and silver is when ETF buying returns, and ETF return depends on whether the Federal Reserve can avoid further rate hikes. A team of Morgan Stanley economists expects inflation to keep falling and the Fed to hold steady this year. If this holds, ETF buying could return as early as Q4, with gold reaching $4,450 per ounce (about +11%) and silver reaching $65 per ounce (about +16%). If geopolitical tensions push up oil prices and force the Fed to raise rates, downside risks for gold and silver could reopen.