One of the world’s largest banks is advising a cautious outlook on gold, saying “unrealized vulnerabilities” pose a threat to the yellow metal after its record run last month.
Analysts with RBC Capital Markets, part of the Royal Bank of Canada, said in a note that there are some “unrealized vulnerabilities to the pillars of gold’s rally.”
“While we are cautious, it’s more because we do not think gold should be at such high levels just yet,” the analysts wrote.
On its surface, the cautionary note seems counterintuitive. Gold hit an all-time high of $2,450 per ounce last month and is up more than 23% over this time last year. Demand from central banks has also been robust, providing a key driver for gold’s record run. Additionally, a survey released this week by the World Gold Council found that nearly one-third of central banks said they planned to increase their gold reserves in the next year.
But analysts questioned whether investors were fully committed after May’s record run. They sold gold during the hot streak, but a sustained return to buying hasn’t yet been observed, RBC noted.
They also said China’s pause last month in gold buying after 18 straight months of purchases reveals more potential vulnerabilities. China is the world’s largest producer and consumer of gold.
“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.
