Morgan Stanley analysts Peter Richardson and Joel Crane are out with a post-FOMC minutes update on what's going on in the gold market.

Richardson and Crane say gold has already priced in an announcement by the Federal Reserve at its September 18-19 FOMC meeting that the central bank will reduce the size of its monthly bond purchase program, as the release of the July meeting minutes on Wednesday suggested.

"Had the FOMC minutes suggested a longer-dated timing, we think the gold price would have seen a more aggressive advance," they write in a note to clients.

Gold has rallied 16.5% from a low of $1179.40 an ounce on June 28 to today's prices around $1374.

The Morgan Stanley analysts cite an "improvement in the physical fundamentals" of the shiny yellow metal as the main driver of the rally.

"Namely, the seemingly inexhaustible sell-off in the ETFs appears to have subsided," say Richardson and Crane. "Furthermore, a recent report from the World Gold Council showed that Indian and Chinese physical demand was exceptionally strong in 2Q. Despite the Indian government’s efforts to limit gold imports, hopes have risen that Indian demand will remain strong ahead of the impending wedding season."

Unfortunately, the metal still remains technically challenged.

"In our view, the recent gold price rally will likely fade towards year-end as the headwinds that have pressured gold throughout the year reemerge," say the analysts. "These headwinds are a strengthening US currency, rising nominal and real bond yields and a continuing erosion in investor faith."

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