Gold prices could dip below $3,000

The gold price could drop below $4,000 by the end of the year and beyond if Chinese demand continues to weaken, according to analysts at Morgan Stanley.

In a note to clients on Tuesday, Morgan Stanley analyst Arjun Mehta said a supply squeeze could result in lower demand and a price drop of about 3 percent by the middle of next year.

That would be enough to make gold worth about $3.30 per ounce by the summer of 2021, which would make it the fifth-best-performing asset class, behind oil, oil, coal and silver, he wrote.

The bull market in gold has helped fuel the Dow Jones Industrial Average (DJIA) and other indexes that are up more than 2 percent this year, outpacing the S&P 500 (SPX) and U.S. dollar index.

“The gold market has shown great resilience, with its price and momentum continuing to rise, and we expect the current price level will be relatively low,” Mehtas wrote.

“If China and India continue to tighten supply and demand pressures, the gold price may fall back below the $3K barrier by the year end, or more likely the end, as supply pressures increase and demand declines.”

On Monday, the U.K. and Germany agreed to extend their gold supply restrictions through 2019, following China’s recent announcement that it would lift its restrictions.

Mehta, who wrote last month that the Dow is a “safe haven” asset class and has a good track record of growth, said that while gold’s price has “evolved considerably” since the last bear market in the early 1990s, he still sees the asset class as a safe-haven asset.

Gold has rallied more than 40 percent this week, reaching $1,350 an ounce for the first time since August.

Investors have priced in higher gold prices this year due to rising interest rates, which are expected to continue to be in place through at least 2019, Mehti wrote.

Gold is a good asset for many reasons, including the fact that it is a precious metal, which has a limited supply and a low price.

The bull market also helps the dollar, which is seen as a safer currency than other currencies, because gold is traded on a basket of international currencies.