HSBC: Gold's incredible rally may finally be running out of steam

Gold's stunning rally, which saw it gain more than 15% in the first quarter of 2016, may finally be running out of steam, according to HSBC.

In the bank's latest Precious Metals Daily report, chief precious metals analyst James Steel argues that while he and the bank continue to remain bullish on the outlook for gold in the long term, the metal's recent rally could come up against some pretty strong resistance in the near future, minimising any gains.

This week's World Gold Council report on global demand showed that gold enjoyed the second-highest quarter demand increase on record in Q1.

That however, doesn't change the picture for gold's slowing rally.

Here's the kicker from Steel (emphasis ours):

As we have pointed out in previous reports, while we maintain a positive stance on gold, further rallies may run into stronger resistance, reinforced by reduced retail and other weak underlying physical demand. This may leave the rally highly dependent on investor sentiment and demand, which may be volatile. A bounce in the USD or increase in risk on sentiment could help clip - but not reverse - the rally.

Gold has rallied massively in 2016, enjoying its best quarter in nearly three decades at the start of the year, gaining around 18% to the end of March, and coming close to the top of the charts when it comes to global asset strength

However, since the end of Q1 things have slowed down a little, with gold gaining just over 3% since the end of March. Here's how things look in the last few weeks:

While Steel and his precious metals team are warning that any future rally in the price of gold could hit obstacles, there is one event that could help spur another huge rally - Brexit.

In a previous Precious Metals Daily note, Steel argued that if Brexit were to occur, it could help send gold prices skywards, comparing gold with the Swiss franc. Here's the quote:

Gold would also likely benefit from a sizable "safehaven" bid in the event of a Brexit vote. The currency team believes the CHF is unlikely to weaken should the UK choose to remain in the EU and we believe the same rationale applies to gold.