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Gold prices have pulled back — but a Morgan Stanley strategist sees 3 key reasons to hold the precious metal

A Morgan Stanley strategists has highlighted three factors which could help support gold prices over the coming months.

Gold’s recent slide may not be enough to undermine the longer-term case for holding the precious metal, according to Morgan Stanley, which sees resilient physical demand and concerns over government finances providing structural support for bullion. Amy Gower, head of metals and mining strategy at Morgan Stanley, highlighted three factors which could help underpin prices over the coming months, despite gold sliding towards a seven-week low earlier this week. Gold futures edged higher on Wednesday to $4,212.60, a 0.77% advance, while spot gold was flat at $4,180.78. The move comes after bullion fell sharply during Monday’s session amid concerns that rising bond yields could dampen appetite for non-interesting-bearing assets, like precious metals. The precious metal has fallen roughly 10% over the last six months. Physical demand for gold remains strong, particularly among central banks, which bought a net 23 metric tons during July, according to World Gold Council data published earlier this month. Gower pointed specifically to China and Poland, which purchased 20 metric tons and 8 tons of gold, respectively, during July. She told CNBC’s “Squawk Box Europe” on Tuesday that Chinese imports of gold broadly are on track to be the highest since 2017. “China seems to have this very strong appetite for gold,” she said. @GC.1 YTD mountain Gold futures. China’s total gold imports, which also reflect private and institutional demand, exceeded 1,000 metric tons during the first eight months of the year, the WGC said. Secondly, as markets remain gripped by concerns around long-term public debt and fiscal sustainability globally, Gower acknowledged that higher bond yields remain a challenge for non-yielding assets like gold. However, while traders’ expectations of fresh Federal Reserve rate hikes are growing, Gower indicated that any further policy intervention or changing market expectation over inflation could move in gold’s favor. “What if we get more intervention in that long-dated bond market and then you get yields coming back down?” Gower said. Meanwhile, as U.S. and Iranian officials reportedly hold separate talks with mediators with a view to resolving the seven-month conflict in the Middle East, a rapid de-escalation could help pull oil prices lower. Kpler data shows Middle Eastern crude exports rebounding this month to their highest level since the war began. any easing of inflation expectations could help contain upward pressure on interest rates and bond yields, in turn boosting gold prices. “What happens if oil comes down?” Gower said. Heading into the final quarter of 2026, Gower said she favors gold on a 12-month view, acknowledging the potential for volatility in the asset against an uncertain economic backdrop of more Federal Reserve meetings and data releases. “There are still lots of reasons to have gold,” she said. “We see $4,000 as quite a strong floor.”

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Technologies

Hedge funds hold a record share of the $30 trillion Treasury market. What could go wrong?

Hedge funds can boost Treasury market liquidity, but their growing role also risks creating financial instability.

Hedge funds are becoming a force to be reckoned with in the roughly $30 trillion U.S. Treasury market, stepping in at a time when some traditional long-term investors have been looking at other options.

The shift is helping the government find buyers as its pile of debt grows, but it may also be making the world’s largest bond market more vulnerable, experts told CNBC.

Hedge funds’ cash Treasury holdings reached $2 trillion at the end of 2025, nearly three times their level five years earlier, the U.S. Treasurys Office of Financial Research said last month. Marketable Treasury debt — which is traded in the secondary market — was $28.9 trillion, putting hedge funds’ share at a record 7%.

More recent Federal Reserve data shows hedge funds remained net buyers of Treasurys in the first half of 2026. Domestic hedge funds bought a net $60.6 billion in the second quarter, up from $26.4 billion in the first, bringing first-half purchases to about $87 billion.

The interest from hedge funds comes at a particularly sensitive time for the Treasury market, with the 10-year yield surging to its highest level since 2007 on Monday and the 30-year soaring to the highest since 2002 on Tuesday.

“Hedge funds apply relatively aggressive leverages as compared to other types of investors and therefore may magnify systematic risk,” said Ricky Siao, a hedge fund specialist from Union Bancaire Privée.

“When forced deleveraging happens due to extreme situations or crisis scenarios, it may result in broader liquidity and financial stability event.”

A different kind of buyer

Pension funds have traditionally been buyers of long-dated government bonds because the extended investment horizons allow them to match assets against liabilities stretching decades into the future.

But structural changes, including the migration from defined-benefit plans that promise a predetermined payout to defined-contribution plans whose value depends on investment returns, are reducing pension funds’ interest in long-term government bonds, according to the OECD.

The shift also comes as some pension funds are increasing allocations to higher-yielding, less-liquid assets such as private credit. Institutional investors poured close to $300 billion into private credit vehicles in 2025, according to Mercer.

Regulators have also flagged risks that come with hedge funds’ increasing participation. The Federal Reserve said in its May financial stability report that hedge-fund leverage remained near record highs and was concentrated among large funds, with leveraged strategies supporting significant positions in Treasurys and other markets. “High leverage can lead to spillovers if the fund suddenly loses access to funding,” the Fed said.

The Bank for International Settlements went further, warning earlier this year that the rise of hedge funds as core intermediaries in government bond markets had created “new financial stability vulnerabilities.” Their reliance on leverage and short-term repo financing could leave core markets more exposed to sudden deleveraging and bouts of market dysfunction, it said.

Hedge funds aren’t simply buying Treasurys because they like the yield.

“They are very different, most pension and insurers have very long term time horizons and focus on liability matching. Hedge funds are about performance, typically shorter term focused on high watermarks and benchmark-beating returns,” said Noah Hamman, founder of AdvisorShares.

Stress test

Much of hedge funds’ activity involves relative-value strategies designed to exploit small pricing differences between closely related securities. One of the most prominent is the Treasury cash-futures basis trade, in which funds buy cash Treasurys while selling corresponding futures, expecting to gain from the price difference between the two markets.

Because the price differential between the cash and futures market is typically tiny, funds often use substantial leverage to generate attractive returns. Repo financing allows them to borrow against Treasury collateral and build positions many times larger than their underlying capital.

There are already signs that hedge funds are becoming more selective as the Treasury sell-off intensifies. Leveraged Treasury basis-trade position have reportedly fallen about 20% this year to $1.2 trillion, according to Morgan Stanley estimates.

The pullback doesn’t necessarily mean hedge funds are dumping Treasurys outright, as Fed data shows they remained net buyers through the second quarter.

But the retreat underscores how quickly leveraged positions can shift when market conditions change and highlights the risk of a disorderly unwind during periods of stress.

“The biggest risk is the basis trade, where a hedge fund simultaneously buys Treasury notes and sells the futures contract that the notes are eligible to settle against,” said Don Steinbrugge, founder and CEO of Agecroft Partners. “These trades have thin margins and can often be levered 20 times, if not higher.”

“As we saw in March 2020, when Treasury market liquidity deteriorated sharply, leveraged funds can be forced to unwind positions quickly. This can create a vicious cycle of margin calls, forced selling, and further market volatility.”

A spike in volatility can drive leveraged hedge funds to put up more cash or unwind their trades. That selling can push prices lower, deepen losses and force other funds to exit.

Besides raising concerns, experts also pointed to the constructive role of hedge fund in the Treasury market.

Ken Heinz, president of Hedge Fund Research, said that hedge funds’ willingness to trade rather than simply hold bonds to maturity can provide two-sided liquidity during both rallies and sell-offs, adding that it could ultimately stabilize rate moves and reduce volatility.

The tension is therefore not that hedge funds are inherently bad for the Treasury market. In normal conditions, their trading can improve liquidity and help correct pricing discrepancies.

“Regulators should be concerned about the potential for a disorderly unwind while weighing the benefits of market liquidity that hedge funds provide when making policy decisions,” said Steinbrugge. “Hedge funds’ growing role in the Treasury market is both necessary for liquidity and a potential source of systemic risk.”

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Technologies

U.S., Iran hold separate mediator talks as Mideast oil exports hit war-time high

Iranian and U.S. officials reportedly met separately with mediators Monday to push for a ceasefire, as Middle Eastern crude exports rebounded to war-time high.

U.S. and Iranian officials have reportedly held separate indirect talks with mediators on Monday, reviving efforts to end seven months of war as Tehran presses for a response to a revised ceasefire framework and Middle East crude exports climb to their highest level since the conflict began.

Iranian Foreign Minister Abbas Araghchi met Qatari mediators in New York, where he remained after the United Nations General Assembly, and reportedly said he expects Washington’s reply by Tuesday. “We talked about ideas and how to find solutions to fulfil Iran’s conditions,” Araghchi said, adding that he planned to return to Tehran once a response arrives. “Whenever the Qataris have a response, they know how to get it to us.”

Iran’s proposal, first presented on the sidelines of last week’s General Assembly, calls for a four- to five-day U.S. timeline to release frozen Iranian funds, lift sanctions on Iranian oil and end the naval blockade of Iranian ports, with nuclear talks beginning within seven days. Tehran has tied any reopening of the Strait of Hormuz to those steps.

President Donald Trump had on Sunday called the plan “unacceptable” and rejected it, telling reporters Iran wants a swift deal because of the economic pressure it is under. Speaking at the White House Monday, Trump said U.S. officials had spoken separately with mediators but gave no further details, adding: “We’re going to win. It’s going to go pretty quickly.”

The diplomatic push comes as physical supply data shows the war’s toll on the oil market easing. Middle Eastern crude exports rebounded this month to around their highest level since the war began in February, Kpler data showed. “Middle East crude exports at just under 80% of pre-conflict levels,” the tracking firm said in a note on Monday.

The Strait of Hormuz itself remains far from normal. Kpler’s real-time tracking showed total clearance through the strait at 10,591 kilobarrels a day on Saturday, against a pre-war baseline of 17,133.

The unresolved standoff is also feeding into U.S. fuel markets, with retail diesel prices hovering near a record high of $6.53 a gallon. The Trump administration is again weighing an export ban days after distancing itself from an earlier version of the plan — a move Kpler estimates would keep roughly 1.2 million barrels a day at home and risk overwhelming storage.

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Technologies

Oil prices fall as crude exports recover at Saudi Arabia’s Red Sea ports

Saudi Arabia has restored flows through the pipeline to around 3.5 million barrels per day, according to media reports.

Oil prices fell Tuesday as Saudi Arabia’s crude exports from its Red Sea ports recover from an attack on a key pipeline earlier this month.

Brent crude

Satellite imagery has confirmed a “major operational recovery” at the Yanbu and Muajjiz terminals, according to a Kpler note published Tuesday.

A total of 12.5 million barrels were loaded onto nine tankers at Yanbu from Saturday through Monday, according to Kpler. Exports from Yanbu were disrupted by the drone attack on Saudi Arabia’s East-West pipeline earlier this month, raising fears of another major hit to global supplies.

But Riyadh has restored flows through the pipeline to around 3.5 million barrels per day, people familiar with the matter told The Wall Street Journal and Bloomberg News on Monday. Its maximum capacity is 7 million bpd.

U.S. and Iranian officials, meanwhile, spoke to mediators on Monday as they try again to negotiate a deal to end the seven-month-long conflict.

Iran offered last week to reopen the Strait of Hormuz in seven days if the U.S. commits to the conditions in the failed June memorandum of understanding. But President Donald Trump on Saturday rejected Tehran’s proposal as oil exports through Hormuz recover.

Oil flows through Hormuz have hit a seven-day average 13.2 million barrels per day, which is 77% of the 17 million bpd that transited the waterway before the U.S.-Iran war, according to Kpler data.

The U.S. military provides protection to tankers from its Gulf allies and maintains a blockade against Iran’s exports.

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