3 factors could derail gold's record-setting rally, veteran advisor says

Gold is vulnerable to a setback as it's not supported by fundamentals, Bob Parker of International Capital Markets Association told CNBC.

• The gold rally is vulnerable to a setback, senior advisor Bob Parker told CNBC.
• The metal isn't supported by fundamentals, as yields rise, the dollar strengthens, and Fed policy stays tight. 
• Its latest rally is being fueled by a "catch up" effect given last year's underperformance. 

Gold is back in the limelight as the yellow metal continues hitting fresh all-time highs, inspiring bullish outlooks on where it might go next.

But while some analysts hold that gold still has major upside ahead, the veteran advisor Bob Parker expects further growth to be minimal.

"I think gold is now very vulnerable to a setback," the senior advisor at International Capital Markets Association told CNBC on Monday. Although the bullion has already gained close to 14% year-to-date, supportive fundamentals are simply not there to take its price higher.

There are three factors that could bring an end to the commodity's record-setting run, Parker said. 

First, gold tends to move inversely to interest rates, making it vulnerable to higher-for-longer monetary policy. And although many expected at least three rate cuts this year, strong data means it is increasingly likely that the Federal Reserve will hold rates higher to keep a lid on inflation. 

In its own note, ING Bank agreed with Parker:

"If the Fed continues its cautious approach to easing, gold prices risk a pullback. We expect gold prices to remain volatile in the coming months as the market reacts to macro drivers, tracking geopolitical events and Fed rate policy," it wrote on Monday.

Second, gold weakens against rising Treasury yields, given that the commodity is not interest-bearing. That means its appeal will suffer against fixed-income safe havens like government bonds, as they can offer enticing returns with few risks. 

Already this week, the 10-year Treasury yield has reached a new 2024 high, as investors readjusted to the possibility of fewer rate cuts this year.

Third, strength in the US dollar is a traditional gold headwind and one that doesn't seem to be loosening. As with bond yields, the dollar is soaring higher on tighter monetary policy, and has gained against nearly all foreign currencies this year, according to Bloomberg. 

So why is gold rallying?

With few fundamentals to back gold's rise, Parker instead argues that its current surge is due to its lackluster performance the year before.

"If you look at the ratio of gold relative to global equity markets last year and the beginning of this year, gold massively underperformed," he said. "So there is that catch up effect investors are looking at the underperformance of gold and therefore increasing exposure to gold."

He also cited that the metal has formed a close correlation to bitcoin, though analysts can disagree on how meaningful it is, he said. So far, the digital token has grown over 67% year to date.

Parker also noted that central banks have been major buyers of gold, as many try to readjust the make-up of their reserves. This has previously been seen as an attempt to move away from the US dollar.