Analysts at RBC Capital Markets said they maintain a cautious stance on gold as it is overvalued after hitting record highs last month.
“We believe gold is overvalued from the perspective of a number of key macro factors and that there are some unrealized vulnerabilities in the pillars of the gold rally,” analysts said in a note.
“While we are cautious, that’s more because we don’t think gold should be at such high levels yet,” she added.
RBC also notes that while May and June saw more stable trends for gold-backed exchange-traded products (ETPs), it remains unconvinced that investors are fully committed. Investors have sold gold during the price surge, and there is no sign of a sustainable return to buying yet.
Strong demand from global central banks has been a crucial driver of gold’s recent rally. However, RBC analysts believe that China’s recent pause in gold purchasing reveals potential vulnerabilities.
“To be clear, we still think central bank demand will remain strong, but there are reasons to be cautious about volume at record prices and after such a sustained period of strength,” they wrote.
Some market participants still expect more than one rate cut this year, using the release of economic data as a reason to invest in gold. Still, in the short term, analysts prefer to stay on the sidelines and anticipate better opportunities as vulnerabilities in the market become apparent.
They also emphasize that the fundamentals of the rally, such as central bank demand, physical demand and Chinese demand, are not without risks.
The analysts point to the Chinese buying pause after an eighteen-month buying streak as an example of these vulnerabilities.
While not arguing on immediate central bank demand in 2024, they remain cautious given record prices and substantial purchases so far.
The World Gold Council central bank survey shows that while 68% of central banks expect their gold reserves to remain unchanged over the next 12 months, 81% believe that total gold reserves will increase.
