RBC Capital Says to Sell Gold Because It’s Already Peaked

obamagoldAmid a sea of analysts bullish on gold, RBC Capital Markets has stepped up with a big bearish call.

Analyst Christopher Louney, commodity strategist for RBC Capital Markets, commented “While we believe the rally has been completely justified, it was largely driven by just two forms of investor demand and we struggle to see how it goes significantly north of recent highs.”

Continuing, (emphasis mine) “We take the seemingly unpopular view, and contend that gold has already seen its 2016 peak.”

The firm’s forecast for gold prices this year is $1,258 an ounce, which would be a 7.4% from the metal’s recent trading price of $1,359 per ounce. For 2017, RBC expects an even lower price of $1,241.

Louney said investors need to be “cognizant of just how much/little runway remains for gold appetite,” wondering
“Can an endless investor bid drive gold materially north of recent highs of around $1365/oz? In Commodity Strategy, we think not – at least not absent another significant risk-off event.”

“A strong dollar will remain a hurdle for gold, as the rolling negative correlation will likely re-strengthen,” he said. “Secondly, while it sounds great on the surface for gold to perform well in non-USD terms, performing well may actually imply demand destruction,” Louney added.

RBC also noted that gold’s 2016 rally has been driven by investor demand, mostly in the form of ETFs and Comex positioning.

Louney isn’t worried about more accommodation from central banks either, believing that investors are already headed against it: “Even if more accommodative global monetary policy were to take the form of more negative rates, it looks difficult for gold to benefit from rates entering deeper negative territory given that most investors that were going to buy gold because of negative rates, probably already have.”

But what if RBC is wrong on its bearish call? The firm noted that “Admittedly, risks to this view include the US recession cycle, a sharp recession in the UK or EU and/or referendum fever spreading around Europe, but this is not our base case,” he said. “[T]hus we do not see enough drivers on the horizon to justify another leg higher in gold prices.”

The SPDR Gold Trust ETF (NYSE:GLD) posted slight losses in premarket trading Thursday to $129.57 per share. The GLD, which is the largest gold-focused ETF in the world, has gained nearly 28% year-to-date, which is more than four times the S&P 500′s return in the same time period.


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