Gold Not Immune to an Equity Market Pullback, Morgan Stanley's Gower Says

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00:00Gold to the year today is up by more than 60%.

00:02Can we just reflect on Friday's price action, a massive trading range?

00:06What was the explanation for you and the guys, you and the team,

00:08as to what was behind those big moves going into the weekend?

00:13Yeah, look, I think it's been a very, very big move.

00:15As you say, it's been a couple of months, really, of gold moving up to about $1,000 in that period

00:21since we had that more dovish pivot from Fed Chair Powell at Jackson Hole.

00:25So I think it's not surprising that we have a bit of volatility,

00:28especially when we're seeing that across other asset classes as well.

00:32And what we often see is if we do see other assets pull back,

00:36gold is often swept up alongside that as well.

00:39Just because it's often used as a source of liquidity,

00:42we saw silver, platinum, palladium as well all down even more.

00:45And I think this precious metals trade has been kind of all driving itself.

00:50And so as those pulled back, we had a bit of weakness as well in gold.

00:53Amy, can we reflect on the pillars of this trade and how it started?

00:56The more recent rally over the last few years.

00:59A lot of people have pointed to the so-called diversification trade sparked by the war in Ukraine

01:03and the prospect of Europe confiscating Russian assets,

01:07triggering this diversification of central bank holdings,

01:10of the dollar exposure, taking on more gold.

01:12Amy, do you think the recent price action is more indicative of reaching

01:15a more speculative phase of this story?

01:17Yeah, no, I think it's a good way to think about it.

01:22So 2022, 23, even much of 2024 was driven by central banks really upping their purchases of gold.

01:30And we still see this, but I guess it's reached a more stable level now.

01:34And so the big shift this year has been the exchange traded funds.

01:38And what we do see is that they are much more linked to what the Fed is doing,

01:42what interest rates are doing.

01:43So actually, exchange traded funds have been selling gold for the previous four years

01:48and really only turns to net buyers this year.

01:51And that has really accelerated since we had that pivot from Fed Chair Powell.

01:56And then, of course, as you say, that there is, as gold does better,

01:59investors start to look at it more, rethink how much gold is in their portfolio as well.

02:04So I think a lot of those discussions are going on.

02:06And as the price continues to work, I think people continue to look at it

02:10and try and increase their exposure.

02:12Amy, as a number of banks have 5K on gold next year, we're in an environment where risk on, risk off,

02:19everyone continues to get crowded into this trade.

02:22Give us some context.

02:23Where have we seen this before in the past?

02:26So I think we saw, I guess, similar moves in gold in 2020, where we had a big run up in price.

02:36And then actually, that was, I guess, eventually pulled back as other asset classes took over and carried on going.

02:42I think that the difference this time around is that gold is rallying alongside everything else.

02:47So it feels like everything is doing well all at once.

02:50And that makes it maybe slightly different to previous rallies.

02:54And I think at the moment, probably the most risk to gold is, you know,

02:58if we did see other asset classes also starting to pull back because everything seems to have become a bit more related.

03:04So, you know, I think if we did get a more meaningful pullback in equity markets, for example,

03:08gold would not be immune to that, particularly as it's often used as a source of liquidity.

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