FX.co ★ Gold might stall its stellar rally this year

The yellow metal is acknowledged to be overvalued. It would not be a sensation if analysts had to downgrade the outlook for gold soon. While gold is still trading at elevated levels, perhaps it makes sense to factor in some downward correction.

Analysts at RBC Capital Markets advise traders to be cautious about the precious metal. They also suppose that gold is overvalued, having printed historic highs in May 2024.

RBC Capital Markets believes that gold is outpriced through most key macroeconomic factors. "There are some vulnerabilities in the potential gold rally. Caution is advisable as such high levels of the yellow metal look suspicious," the company pointed out.

Remarkably, a fairly stable trend was discovered for exchange-traded products backed by gold (ETP) in May and June. However, during the rally, investors sold a lot of gold assets. Since then, investors have not opened new large-scale long positions on gold, RBC Capital Markets notes.

The main catalyst for the recent gold rally was the growing demand from major central banks. Many analysts reckon that central bank demand for gold will boost again, but "there are reasons to be cautious about volumes of buying at such record high prices after a prolonged period of growth," RBC Capital Markets adds.

Some market participants still expect several rate cuts in 2024. Therefore, they refer to current economic data as a reason to invest in gold. However, many experts prefer to stay on the sidelines, waiting for better opportunities in the market.

Specialists highlight some risks which accompany the gold rally. These are mainly related to the fragile economic situation in China. One such vulnerability is that the People’s Bank of China could suspend its gold purchases after an 18-month buying streak. Importantly, demand for the yellow metal in China was very high then.

According to a survey of central banks conducted by the World Gold Council, 68% of respondents expect their gold reserves to remain at current levels over the next 12 months. Meanwhile, 81% of those surveyed believe that the overall volume of gold reserves will increase.