RBC Capital Markets analysts said they maintain a cautious stance on gold, considering it overvalued after reaching record highs last month.
“We think that gold is overvalued from the perspective of a number of key macro drivers and that there are some unrealized vulnerabilities to the pillars of gold’s rally,” analysts said in a note.
“While we are cautious, it’s more because we do not think gold should be at such high levels just yet,” they 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 holdings during the price rally, and a sustained return to buying has not yet been observed.
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 that central bank demand will continue to be strong, but there are reasons to be cautious on the 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 economic data releases as reasons to invest in gold. Yet, analysts prefer to stay on the sidelines in the short term, anticipating better opportunities as market vulnerabilities become apparent.
They also emphasize that the foundational elements of the rally, such as central bank demand, physical demand, and Chinese demand, are not without risks.
The analysts point to China's pause in purchasing after an 18-month buying streak as an example of these vulnerabilities.
While not bearish on outright central bank demand in 2024, they maintain a cautious outlook given the record prices and substantial purchases to date.
The World Gold Council's central bank survey indicated that while 68% of central banks expect their gold reserves to remain unchanged over the next 12 months, 81% believe total holdings will increase.