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Why Is Gold Morgan Stanley’s Top Commodity Pick?

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Jun. 27 2019, Updated 3:41 p.m. ET

Morgan Stanley is warming up to gold

Morgan Stanley (MS) is another investment bank that’s warming up to gold. As reported by CNBC, Morgan Stanley’s commodity strategist, Susan Bates, said that gold is the company’s number-one commodity pick. Bates said, “Morgan Stanley’s forecasts of falling real rates and a bearish US dollar outlook, against an uncertain macroeconomic outlook, should lend significant upside to gold’s price through 2H19 and into 1H20.”

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MS sees the Fed cutting rates by 50 basis points in July. The US Federal Reserve’s policy U-turn in 2019 is well known. After cutting rates four times in 2018, the Fed has started talking about monetary easing. During its June policy meeting, the Fed indicated that it would be open to interest rate cuts (TLT). In fact, CNBC reports that traders are now pricing in 100% odds of a Fed rate cut in July. The question now is not if but by how much the Fed will cut the rate in July.

Morgan Stanley increased its price target for gold

MS has increased its price target for gold to $1,435 per ounce in the second half of 2019 and $1,338 per ounce in 2020. MS analysts believe that strong prices for gold should continue through the first half of 2020 before stabilizing as rates are kept on hold and economic activity recovers.

Morgan Stanley, however, sees risks skewed to the upside for gold.

GLD and GDX

The SPDR Gold Shares ETF (GLD) and the VanEck Vectors Gold Miners ETF (GDX) are trading 11.7% and 22.6% above their 200-day moving averages, respectively, due to the recent impetus for gold provided by central banks. Although there may be a short-term pullback in prices, the factors outlined above should keep supporting gold.

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