According to Morgan Stanley commodity strategists, this surge is driven primarily by the physical market, with central bank purchases doubling in 2022/23 compared to previous trends. Retail buying has also increased this year, especially in China, where bar and coin demand is very strong.

Moreover, gold exchange-traded funds (ETFs) have experienced continued inflows since late May, primarily from Europe following the June rate cut. Strategists believe the US ETFs are likely to follow suit as rate cuts take effect, further supporting gold prices.

"While US recession fears are rising, our economists still see a soft landing with a stronger Fed reaction if the data turns weaker, either of which should support investor gold inflows,” strategists led by Amy Gower said in a note.

“COMEX net longs are at the highest since Q2 2022, but still 100k lots off all-time highs,” they added.

While the recent rally has been driven by physical factors, strategists argue that financial flows will drive the next leg higher. They note this shift is “starting to come through,” predicting that gold prices could reach $2,650/oz by Q4 2024.

They said volatility is expected to continue as new US data affects predictions about the timing of rate cuts, however, the overall trend for gold is anticipated to move higher.

China's central bank halted its gold purchases in May after 18 consecutive months, and India's jewelry demand has reportedly softened.

In June, gold withdrawals from the Shanghai Gold Exchange were down 31% year-over-year, as weak jewelry demand offset strong bar and coin consumption.