Morgan Stanley on Gold: Still Dour After a Nasty Year

http://blogs.barrons.com/focusonfunds/2014/04/28/morgan-stanley-on-gold-still-dour-after-a-nasty-year/?mod=BOLBlog

By Brendan Conway

The commodity strategists at Morgan Stanley write today that record demand from China won’t be enough to keep gold’s price above $1,200 per ounce in the coming year, much less help it rise.
On the contrary, the firm’s Joel Crane and six co-authors argue instance that weaker Chinese demand could the thing that causes prices to erode even more.
Here’s how that could happen: The weakening yuan. The Chinese currency’s downswing reduces the purchasing power of Chinese consumers, cutting down the amount of gold each yuan can buy.

What’s more, the firm sees the handful of factors helping to support gold’s price lately and its 7% year-to-date rise — trouble in Crimea, worries about the U.S. economy, and worries about Chinese growth — taking a back seat.
At least the ETF sellers of 2013 have stepped back, not that this convinces the group that gold is set to rise again:

After the heavy sell-off in 2013, ETFs have largely refrained from further selling in 2014 on expectations of EM fund outflows sustaining into safe-haven assets. However, we see near-term headwinds remaining substantial for interest in gold to recover. CFTC net long positions in gold, currently at October 2013 levels, also indicate tepid interest from investors.

All those factors lead the MS strategists to predict an average gold price of $1,250 per ounce this quarter, followed by declines to an average $1,168 in the second half and $1,138 next year.