RBC Claims Gold Is Overvalued

Analysts at RBC Capital Markets are taking a cautious approach towards gold, viewing it as overvalued following its record highs reached last month. They express concerns regarding several key macro drivers and identify potential vulnerabilities that could threaten the sustainability of gold’s recent rally.

In a recent note, the analysts explained, “We believe gold’s current high levels are not justified.” They caution that, despite a perceived stability in gold-backed exchange-traded products during May and June, investor commitment appears uncertain, as evidenced by recent sales of gold holdings amidst the price increase.

The surge in demand from global central banks has significantly contributed to gold’s rise. However, RBC analysts highlight China’s recent halt in gold purchases as a sign of possible weaknesses in this demand. They assert, “While we still anticipate strong central bank demand, the volume at these record prices raises some concerns.”

Despite some market participants expecting multiple rate cuts this year, influencing them to invest in gold based on economic data, analysts prefer to remain cautious. They anticipate better investment opportunities as market vulnerabilities become clearer.

Furthermore, they stress that the critical components of the rally, including central bank demand, physical demand, and demand from China, are not without their risks. The pause in China’s buying, following an 18-month spree, serves as a notable example of these risks.

Though the analysts do not hold a bearish view on central bank demand for 2024, they maintain a wary stance due to the current high prices and significant past purchases. According to a survey from the World Gold Council, while 68% of central banks expect their gold reserves to stay the same over the next year, 81% anticipate an increase in their total holdings.