In its latest research report, Morgan Stanley stated that although easing geopolitical tensions and continued large-scale central bank purchases provide solid structural support for gold prices, the metal’s attempt to challenge the historic US$5,600-per-ounce level is facing increasingly strong resistance from a more hawkish Federal Reserve.

While the Wall Street bank maintains a bullish outlook for precious metals heading into the second half of 2026, it warns that achieving the US$5,600 target will become increasingly difficult without a meaningful recovery in exchange-traded fund (ETF) demand.

Morgan Stanley’s commodity strategists noted that the missing piece in the current gold market is ETF buying demand, which is likely to remain highly sensitive to the Federal Reserve’s policy path, real yields, and movements in the US dollar.

The Federal Reserve has become the primary obstacle to gold’s recent upside momentum.

Following the Federal Open Market Committee’s (FOMC) hawkish statement and upward revision of interest-rate projections, expectations for additional rate hikes increased, raising the opportunity cost of holding non-yielding assets such as gold.

The Federal Reserve now appears committed to keeping policy rates unchanged through 2026 while paying little attention to downside risks in the labor market.

Expectations of higher interest rates for longer have pushed US 10-year real yields significantly above their February levels, contributing to recent net outflows from gold ETFs.

On the other hand, signs of easing tensions in the Middle East are providing an unexpected tailwind.

Historically, gold has often struggled during supply-shock crises. Rising energy prices create inflationary pressure, forcing central banks in oil-importing countries such as Türkiye to sell gold reserves in order to maintain fiscal stability.

If geopolitical conditions continue to improve, oil prices could decline further. This would provide central banks with greater policy flexibility and reduce pressure to liquidate gold reserves.

Although enthusiasm among retail investors and ETF buyers has cooled, unprecedented central bank demand continues to provide a strong structural floor for gold prices.

China has significantly accelerated the pace of its gold reserve accumulation. Between March and May 2026 alone, Beijing purchased 23 tonnes of gold, compared with a total of just 19 tonnes over the preceding twelve months.

While rate hikes traditionally act as a headwind for gold, historical performance paints a more nuanced picture.

According to Morgan Stanley’s data, gold has risen an average of 0.84% in the month following a 25-basis-point Federal Reserve rate hike.

By comparison, gold has gained an average of 3.93% in the month following a 25-basis-point rate cut.

Looking back at previous tightening cycles—including June 2006, December 2018, and March 2023—gold often moved higher despite rate hikes when investors became concerned about economic growth, feared policy mistakes, or worried about acute stress within the banking system.

Market Analysis:

Gold rebounded after a decline on the 4-hour chart, with both the MACD lines and histogram expanding below the zero line.

For gold to begin its next major rally, macro investors will likely need to return to the market through ETF allocations.

That shift will depend largely on clear evidence that lower energy costs are successfully feeding through into softer inflation pressures and, ultimately, a more accommodative Federal Reserve policy stance.