Morgan Stanley strategists explain why gold prices are falling despite escalating Middle East tensions, attributing the unexpected weakness to currency dynamics rather than shifting sentiment. The recent strength of the US dollar has become a key headwind for precious metals, even as geopolitical uncertainty typically supports safe-haven assets.

Analysts led by Amy Gower note that multiple factors influence gold prices simultaneously, including Federal Reserve rate expectations, currency movements, and market liquidity. Recent selling appears driven by investors raising cash during market stress rather than a fundamental shift in sentiment toward gold.

Should geopolitical tensions remain elevated, the bank expects gold could reach $5,700/oz in the second half of the year. Dubai handles about 20% of global gold flows, making it the second-largest exporter after Switzerland, while Middle Eastern central banks bought roughly 90 tonnes of gold in 2022.