RBC Capital Markets is the latest bank to add to the chorus of bullish calls on gold.
Analysts noted that gold prices were highly data dependent on a daily basis, while also riding the high of a confluence of supportive narratives.
Friday’s US employment numbers bolstered the case for a Federal Reserve interest rate cut next week, while gold continues to attract safe haven buying due to heightened geopolitical risks.
“All of this is on top of constructive demand earlier this year, largely attributable to strong central bank demand and strong physical demand, especially in China earlier on,” RBC analysts, led by gold and natural gas strategist Christopher Louney, said on Sunday.
“As such, there’s a lot of gold-positive themes priced into the market right now.”
Spot gold hit a record of US$2531 an ounce on August 20 and traded close to that price on Friday, before dipping back below US$2500/oz.
RBC analysts said there were more records in gold to come.
“So, what’s going to get us there? We think there are still investors on the sidelines who are set to make allocations to gold going into year-end and into next year,” the bank said.
According to RBC, gold-backed exchange-traded product (ETPs) flows had been mostly rising since June and there were assets under management (AUM) that could theoretically come back as the decline began in mid-2023.
“Even though rate cuts seem priced in in the near-term, as expectations become reality, there’s plenty of AUM that can come back,” it said.
“We’ve seen some improvements in managed money flows, increases in interest broadly, and of course the long-awaited return of inflows into gold-backed ETPs.
“Our prior view rested largely on caution that gold had gotten ahead of itself on the back of a physically driven rally that lacked investor follow-through.”
Big price upgrade
RBC’s last price forecast, set in April, had a base case scenario of US$2072/oz for 2024 and US$2160/oz for 2025.
Its new base case for 2024 is US$2390/oz, rising to US$2835/oz in 2025.
RBC said its new forecast still contained “some caution against the loftiest forecasts out there”.
“Both the physical drivers of the rally (central bank and physical demand) and rate cuts are largely priced in, and while they will continue to play a role in gold’s elevated price (more so rate cuts), the difference now is investor follow-through. ETP inflows have begun in earnest,” it said.
Its low case scenario for 2024 has been lifted from US$1965/oz to US$2286/oz and from US$1959/oz to US$2256/oz for next year.
The high case scenario is now US$2466/oz for 2024 and US$3014/oz for 2025, up from US$2248/oz and US$2394/oz, respectively.
“We think the lingering interest will drive the next leg,” RBC said.
“Yet our base case is much closer to the high scenario than our low.
“Our one significant remaining note of caution is that we think that if the gold-positive narrative melts away, there is room to fall.
“Versus our high scenario where there’s limited incremental things that could go in gold’s favor, there are more – albeit less likely – gold-negative things that could happen in our low scenario.”
RBC’s comes less than a week after Goldman Sachs named gold as its top commodity pick with an early 2025 target of US$2700/oz.