Has gold run too high too soon? One broker thinks so
Has gold’s run to record highs got ahead of itself?
Analysts at RBC suggest it might and that the fundamentals point to a correction over the longer term.
A mix of strong central bank demand, robust Chinese consumer interest, general physical demand—as evidenced by significant sales like those at Costco—and geopolitical tensions in Europe, the Middle East, and other regions have pushed gold up to around US$2,350 an ounce.
But RBC questions how sustainable this is over the long term.
“Key drivers such as high interest rates and a strong dollar suggest that gold may be significantly overvalued. Traditional models, which often emphasize macroeconomic indicators [interest rate cuts], support this view.
“Recent analyses have not consistently found the usual demand indicators to be reliable predictors of gold prices.”
Current models, which include a blend of various economic factors, still suggest an overvaluation of gold relative to both high and medium scenarios.
Despite the potential for further price increases spurred by strong market demand, especially before any rate cuts, negative investment trends outside Asia, marked by significant ETF outflows, underscore vulnerabilities in the gold market.
As such, RBC says its forecasts remain cautious, with 2024’s high scenario averaging gold at US$2,248 per ounce and 2025 at US$2,394 per ounce, “suggesting a re-evaluation of market expectations may be necessary”.
Source: https://www.proactiveinvestors.co.uk/