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Gold price breaks $1,700; let it ride to $2,000 - Bank of America

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(Kitco News) - Bank of America’s target for gold the year was hit earlier this week as prices pushed above $1,750 an ounce, hitting a 7.5-year high. The bank’s analysts are now letting their bullish bet ride to all-time highs.

The analysts warned that although momentum indicators are starting to flash overbought signals, they remain optimistic that prices will continue to rally. In a report Wednesday, the bank said that it is expecting prices to eventually hit new all-time highs if they can break above resistance of $1,800 an ounce.

“Last week's accommodative Federal Reserve announcement led gold futures to $1,754. This confirmed a continuation head-and-shoulders pattern that targets $1,852, possibly $1,947,” the analysts said.

Last week, the Federal Reserve launched a $2.3 trillion loan program to help small and medium-sized business survive the COVID-19 pandemic. Last month, the Federal Reserve took unprecedented steps to shore up the economy, including lowering interest rates to a zero-bound target and launching unlimited quantitative easing programs.

Bank of America analysts noted that with gold prices having traded around $1,750, the market is up 15% for the year. The June gold futures last traded at $1,755 an ounce, up nearly 1% on the day. The analysts added that it’s not unprecedented to see even larger rallies.

“Gold prices have rallied 20% or more 15 times since 1981 and 30% or more seven times. The biggest rallies were in 2006-2011 during the late cycle equity rally into and after the Global Financial Crisis,” the analysts said. “If $1,947 were to be reached, then gold would be up 27% YTD [year to date]. A 31% YTD rally reaches $2,000. A 41% rally like 2006 reaches $2,150.”

While, Bank of America expects to see higher prices, the analysts said that it won’t be an easy road higher. They noted that speculative interest in gold is beginning to look a little crowded.

“When we adjust net non-commercial positioning for open Interest (second panel) we find the market is stretched long gold at a record level. This is a concern for any new longs going forward as a decline that triggers a long position squeeze would be sharp,” the said.

The analysts also said that $1,800 could prove to be a sticky resistance point in the near-term.

If the market does see some selling pressure, Bank of America said that it sees technical support around at $1,680 to $1,700. They added that a drop to this area would represent a buying opportunity.

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