Written by: Rita

Trends Guide

The central bank is buying, ETFs are selling, and gold prices are stuck at the $4,000 level.

Morgan Stanley's latest precious metals report gives a clear judgment: for gold prices to rise, ETFs need to return. In 2025, ETFs bought around 800 tons of gold, which was the biggest driving force behind the rise in gold prices. This force disappeared in the first half of this year, with a global outflow of 74 tons from ETFs in June, primarily from North America.

On the other hand, central bank gold purchases are accelerating. China bought 14.9 tons of gold in June, the largest monthly increase since October 2023, marking the 20th consecutive month of purchases, and the cumulative amount this year has exceeded last year's total.

Morgan Stanley's economist team believes that inflation has begun to decline and the Federal Reserve will not raise interest rates this year. If this judgment holds, ETF buying may return as early as the fourth quarter, with gold prices potentially reaching $4,450 and silver prices $65.

The central bank is buying, and China is the main force

Turkey was the largest seller of gold in the first half of this year. Following the outbreak of conflict in the Middle East, the Turkish central bank sold approximately 60 tons of gold to defend the lira. Russia sold 34.2 tons, already surpassing last year's total.

But the buying interests are greater. China bought 14.9 tons of gold in June, with a total purchase of 40.1 tons this year, exceeding last year's total. Poland purchased 63.6 tons, at a faster pace than last year. Uzbekistan bought 32.7 tons, compared to only 7.8 tons for the entire last year.

Global central bank net purchases rebounded monthly after hitting a low in March, with 21.5 tons in April and 41.2 tons in May. Central bank buying is supporting the market, but it alone cannot drive gold prices up.

ETFs are the biggest variable

In 2025, ETFs bought about 800 tons of gold, making it the biggest driving force behind the rise in gold prices. This driving force disappeared in the first half of 2026. In June, global gold ETFs experienced an outflow of 74 tons, with North America seeing an outflow of 42 tons. Since the beginning of the year, North American ETFs have seen a net sale of 60.5 tons.

Expectations of interest rate hikes have suppressed the attractiveness of gold. ETF buying requires the Federal Reserve to "at least maintain interest rates, preferably to start lowering them." This requires more data validation and may have to wait until the fourth quarter.

Silver has an additional drag

Silver has fallen by about 23% this year, much greater than gold's 8%. ETFs are selling, and industrial demand is also weakening.

Photovoltaics account for 17% of silver demand, but silver use in photovoltaics has decreased by 6% in 2025, with an expected further decline of 19% in 2026. China's solar cell production has dropped by 2% year-on-year, and installed capacity has decreased by 70%. High silver prices are driving substitution, with China's largest solar manufacturer, Longi, already starting to use copper instead of silver.

The correlation between silver and copper has dropped from 95% to nearly 0%. Morgan Stanley believes copper has a story related to power grids and data centers, while silver only has a story of photovoltaic decline. For silver prices to rebound, both ETF returns and stabilization in industrial demand need to be met simultaneously.

What is the market waiting for?

Morgan Stanley's price forecast for the end of 2026 is $4,450 for gold (approximately +11%) and $65 for silver (approximately +16%). The only prerequisite is that the Federal Reserve does not raise interest rates this year.

Morgan Stanley's economist team believes inflation has begun to decline, as evidenced by the 0.0% month-on-month CPI in June. However, this judgment diverges from the market pricing of about 1.4 interest rate hikes within the year.

If inflation continues to decline and the Federal Reserve does not raise interest rates, ETF buying will return. If geopolitical conflicts push up oil prices, inflation rises again, and the Federal Reserve is forced to raise interest rates, the downside risk for gold will reopen.

Trends Perspective

The most core judgment of Morgan Stanley's report is a time lag: central bank buying has accelerated, but ETF buying has not yet returned. Gold prices are stuck in between, with an unclear short-term direction.

The experience of ETFs buying 800 tons of gold in 2025 shows that this flow of money is very elastic; once it returns, it will act like a bulldozer. Morgan Stanley predicts that ETF inflows will return by the fourth quarter at the latest, but the prerequisite is that the Federal Reserve does not raise interest rates.

The situation for silver is more complex. The return of ETFs will provide upward elasticity, but the headwinds in photovoltaics have not yet ended. When both variables turn positive, silver's elasticity will be greater than gold's, as it has fallen more this year. But before that, silver will still need to wait.

Disclaimer

This article is a summary and interpretation of a third-party brokerage research report (Morgan Stanley, July 20, 2026) by Trends Research. The ratings, target prices, profit forecasts, and related judgments quoted in this article reflect the views of the brokerage analysts and represent the stance of their respective institutions, not the views of Trends Research, and do not constitute any investment advice.

The market bears risks, and decisions should be made independently. This article should not be used as a basis for trading any securities.