The focus of gold’s safe-haven role has shifted: Morgan Stanley values its buffer against Treasury sell-offs

What risks can gold hedge now?

Morgan Stanley’s historical analysis shows that since 2020, gold and equities have generally been positively correlated, and gold has amplified portfolio losses during extreme equity declines. By contrast, US Treasuries can still hedge daily declines in the S&P 500 index.
Gold plays a different role with respect to US Treasuries: since the pandemic, it has helped cushion portfolio losses during the most severe weekly Treasury sell-offs. However, this conclusion is based on very few stress observations.
As inflation expectations and concerns about fiscal sustainability rise, Morgan Stanley believes investors may place greater value on gold’s ability to protect against government bond risks.

Gold’s own volatility is similar to that of equities, and the correlation between stocks and gold is unstable. From 1990 to 2005, even though gold was negatively correlated with equities, adding it to a stock-and-bond portfolio did little to improve risk-adjusted returns.
Since 2006, adding gold has raised historical portfolio returns at the same level of volatility, primarily because gold outperformed bonds rather than because the portfolio’s minimum risk fell. In years when gold significantly improved portfolio returns and volatility, its return exceeded that of bonds by more than 8.5 percentage points.

In September, the Federal Reserve raised rates for the first time since 2023, the dollar strengthened, and the yield on the US 10-year Treasury rose to its highest level since the early 21st century. Gold fell only about 10% from its August peak and remained slightly above 4000 dollars per ounce.
Morgan Stanley estimates that if the relationship between gold prices and real interest rates from March to July had continued, gold would have been below 3000 dollars per ounce, 28% below its level at the time. The bank attributes the gap mainly to central-bank gold purchases and ETF inflows.
Central banks bought 289 tonnes of gold in the second quarter of 2026, an annualized 1155 tonnes. That exceeded the 860 tonnes purchased in all of 2025 and the bank’s forecast of 800 tonnes for full-year 2026. Preliminary signs in the third quarter indicate that buying momentum remains strong.
Global gold ETFs attracted 31 billion dollars in the third quarter, a single-quarter record in dollar terms, equivalent to approximately 220 tonnes. However, inflows of about 250 tonnes so far in 2026 remain below the approximately 800 tonnes recorded for all of 2025.

Morgan Stanley names gold its top pick among metals, with a target price of 5000 dollars per ounce in the second quarter of 2027. The bank believes falling bond yields would lower the opportunity cost of holding non-interest-bearing gold and could bring new ETF and speculative buying.
The bank’s economists expect the Federal Reserve to raise rates twice more by the end of 2027, fewer than the approximately 2.7 hikes priced in by the market. If inflation pressures ease and actual rate hikes fall short of market expectations, that would benefit gold.
Further tightening and a stronger dollar could trigger ETF outflows and suppress physical demand. Central-bank gold sales are another risk; Kazakhstan plans to reduce gold’s share of its reserves from 78% to 75%.