What’s Next for India-China Trade?

Welcome to Thoughts on the Market. I’m Amy Gower, Morgan Stanley’s Metals & Mining Commodity Strategist.

Today, we’re talking about gold, a metal that’s more than just a safe haven for investors, and what it tells us about the global economy and markets right now.

It’s Wednesday, September 10th, at 3pm in London.

Gold has always been the go-to asset in times of uncertainty. But in 2025, its role is evolving. Investors are watching gold not just as a hedge against inflation, but as a barometer for everything from central bank policy to geopolitical risk. When gold prices move, it’s often a sign that something big is happening beneath the surface.

Gold and silver have both already clocked up hefty year-to-date gains of 39 and 42 percent respectively. So, what’s been driving this rally?

Well, several factors stand out. For one, central banks are on track for another year of strong buying, with gold now representing a bigger share of central bank reserves than treasuries for the first time since 1996. This is a strong vote of confidence in gold’s long-term value. Also, gold-backed Exchange-Traded Funds, or ETFs, saw inflows of $5 billion in August alone, with the year-to-date inflows the highest on record outside of 2020, signaling renewed interest from institutional investors too. With inflation still above target in many major economies, gold’s appeal has been surprisingly resilient despite being a non-yielding asset. And investors are betting that central banks may soon have to cut rates, which could further boost gold prices.  

In fact, from here we see around 5 percent further upside to gold by year end to $3800/oz which would be a new all-time high.

But there is one important wrinkle to consider. Keep in mind that while precious metals, especially gold, are primarily seen as a hedge and safe haven in times of macro uncertainty, jewelry is a big chunk of the overall precious metals market. It accounts for 40 percent of gold demand and 34 percent of silver demand. And right now how jewelry demand will evolve remains an unknown. In fact, jewelry demand is already showing signs of weakness. Second-quarter gold jewelry demand was the worst since the third quarter of 2020 as consumers reacted to high prices. Nonetheless, gold was able to hold onto its January-April gains, and silver continued to grind higher, supported by strong demand from the solar industry as well. However, until recently, the two metals were lacking catalysts for further gains.

Now though this is changing, with both gold and silver poised to benefit from expected Fed rate cuts. Our economists expect the Fed to cut rates at the September meeting, for the first time since December 2024. And if we look back to the 1990s, on average gold and silver prices have risen 6 and 4 percent respectively in the 60 days following the start of a Fed rate-cutting cycle as lower yields make it easier for non-yielding assets to compete.

Our FX strategists also expect further dollar weakness, which should ease some of the price pressures for holders of non-USD currencies, while India’s imports of gold and silver already showed signs of improvement in July. The country is looking also to reform its Goods and Services tax, which could free up purchasing power for gold and silver ahead of festival and wedding season.

Gold does tend to outperform after Fed rate cuts, and we would keep the preference for gold over silver, but our outlook for both metals remains positive.

Of course, precious metals are not risk-free. Prices can be volatile, and if central banks surprise the market with higher interest rates, gold in particular could lose some of its luster. But for now, both gold and silver should continue to shine.

Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Terence Flynn: Welcome to Thoughts on the Market. I'm Terence Flynn, Morgan Stanley's U.S. Biopharma Analyst.

Erin Wright: And I'm Erin Wright, U.S. Healthcare Services Analyst.

Terence Flynn: Thanks for joining us. We're actually in the midst of the second day of Morgan Stanley's annual Global Healthcare Conference, where we hosted over 400 companies. And there are a number of important themes that we discussed, including healthcare policy and capital allocation.

Now, today on the show, we're going to discuss one of these themes, healthcare spending, which is one of the most pressing challenges facing the U.S. economy today.

It is Tuesday, September 9th at 8am in New York.

Imagine getting a bill for a routine doctor's visit and seeing a number that makes you do a double take. Maybe it's $300 for a quick checkup or thousands of dollars for a simple procedure.

For many Americans, those moments of sticker shock aren't rare. They are the reality.

Now with healthcare costs in the U.S. higher than many other peer countries on a percentage of GDP basis, it's no wonder that everyone – not just investors – is asking; not just, ‘Why is this happening?’ But ‘How can we fix it?’ And that's why we're talking about AI today. Could it be the breakthrough needed to help rein in those costs and reshape how care is delivered?

Now I'm going to go over to you, Erin. Why is U.S. healthcare spending growing so rapidly compared to peer countries?

Erin Wright: Clearly, the aging population in the U.S. and rising chronic disease burden here are clearly driving up demand for healthcare. We're seeing escalating demand across the senior population, for instance. It's coinciding with greater utilization of more sophisticated therapeutics and services. Overall, it's straining the healthcare system.

We are seeing burnout in labor constraints at hospitals and broader health systems overall. Net-net, the U.S. spent 18 percent of GDP on healthcare in 2023, and that's compared to only 11 percent for peer countries. And it's projected to reach 25 to 30 percent of GDP by 2050. So, the costs are clearly escalating here.

Terence Flynn: Thanks, Erin. That's a great way to frame the problem. Now, as we think about AI, where does that come in to help potentially bend the cost curve?

Erin Wright: We think AI can drive meaningful efficiencies across healthcare delivery, with estimated savings of about [$]300 to [$]900 billion by 2050.

So, the focus areas include here: staffing, supply chain, scheduling, adherence. These are where AI tools can really address some of these inefficiencies in care and ultimately drive health outcomes. There are implementation costs and risks for hospitals, but we do think the savings here can be substantial.

Terence Flynn: Great. Well, let's unpack that a little bit more now. So, if you think about the biggest cost buckets in hospitals, where can AI help out?

Erin Wright: The biggest cost bucket for a hospital today clearly is labor. It represents about half of spend for a hospital. AI can optimize staffing, reduce burnout with a new scribe and some of these scribe technologies that are out there, and more efficient healthcare record keeping. I mean, this can really help to drive meaningful cost savings.

Just to add another discouraging data point for you, there's estimated to be a shortage of about 10,000 critical healthcare workers in 2028. So, AI can help to address that. AI tools can be used across administrative functions as well. That accounts for about 15 to 20 percent of spend for a hospital. So, we see substantial savings as well across drugs, supplies, lab testing, where AI can reduce waste and improve adherence overall.

Terence Flynn: Great. Maybe we'll pivot over to the managed care and value-based care side now. How is AI being used in these verticals, Erin?

Erin Wright: For a healthcare insurer – and they're facing many challenges right now as well – AI can help personalize care plans. And they can support better predictive analytics and ultimately help to optimize utilization trends. And it can also help to facilitate value-based care arrangements, which can ultimately drive better health outcomes and bend the cost curve. And ultimately that's the key theme that we're trying to focus on here.

So, I'll turn it over to you, Terence, now. While hospitals and payers could see notable benefits from AI, the biopharma side of the equation is just as critical here. Especially when it comes to long-term cost containment. You've been closely tracking how AI is transforming drug development. What exactly are you seeing?

Terence Flynn: Yeah, a number of key constituents are leaning in here on AI in a number of different ways. I'd say the most meaningful way that could help bend the cost curve is on R&D productivity. As many people probably know, it can take a very long time for a drug to reach the market anywhere from eight to 10 years. And if AI can be used to improve that cycle time or boost the probability of success, the probability of a drug reaching the market – that could have a meaningful benefit on costs. And so, we think AI has the potential to increase drug approvals by 10 to 40 percent. And if that happens, you can ultimately drive cost savings of anywhere from [$]100 billion to [$]600 billion by 2050.

Erin Wright: Yeah, that sounds meaningful. How do you think additional drug approvals lead to meaningful cost savings in the healthcare system?

Terence Flynn: Look, I mean, high level medicines at their best cure disease or prevent people from being admitted to a hospital or seeking care to doctor's office. Equally important medicines can get people out of the hospital quicker and back to contributing or participating in society. And there's data out there in the literature showing that new drugs can reduce hospital stays by anywhere from 11 to 16 percent.

And so, if you think about keeping people out of hospitals or physician offices or reducing hospital stays, that really can result in meaningful savings. And that would be the result of more or better drugs reaching the market over the next decades.

Erin Wright: And how is the FDA now supporting or even helping to endorse AI driven drug development?

Terence Flynn: If companies are applying for more drug approvals here as a result of AI discovery capabilities without modernization, the FDA could actually become the bottleneck and limit the number of drugs approved each year.

And so, in June, the agency rolled out an AI tool called Elsa that's looking to improve the drug review timelines. Now, Elsa has the potential to accelerate these timelines for new therapies. It can take anywhere from six to 10 months for the FDA to actually approve a drug. And so, these AI tools could potentially help decrease those timelines.

Erin Wright: And are you actually seeing some of these biopharma companies actually investing in AI talent?

Terence Flynn: Yes, definitely. I mean, AI related job postings in our sector have doubled since 2021. Companies are increasingly hiring across the board for a number of different, parts of their workflow, including discovery, which we just talked about. But also, clinical trials, marketing, regulatory – a whole host of different job descriptions.

Erin Wright: So, whether it's optimizing hospital operations or accelerating drug discovery, AI is emerging as a powerful lever here – to bend the healthcare cost curve.

Terence Flynn: Exactly. The challenge is adoption, but the potential is transformative. Erin, thanks so much for taking the time to talk with us.

Erin Wright: Great speaking with you, Terence.

Terence Flynn: And thanks everyone for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend or colleague today.