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All eyes on $1,800 but Bank of America also watching $2,000 for Q3

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(Kitco News) - The gold market appears to be on the cusp of breaking a major resistance point and is price action is in line with Bank of America’s call for the precious metal to hit all-time highs by the third quarter of 2020, the bank said in a research note.

While gold’s eight-week trading range has been frustrating for some investors, analysts at Bank of America said that the recent sideways pattern has played an important role for the market as prices reach their highest level in nearly eight years.

“During the last eight weeks, price action consolidated into a range that, for two reasons, is very important for the uptrend we've been calling for. For one it has given momentum indicators time to cool off such as the daily RSI [Relative Strength Index] declining to 42 and weekly RSI falling to 56. Second it has allowed net non-commercial positioning (adjusted for open interest) to correct from all-time highs,” the analysts said in their report.

The analysts said that the $1,800 level is an important long-term resistance point, and a break would be a significant move. They noted that this level has been tested three times since prices fell from the 2011 all-time highs. August gold futures last traded at $1,785.30 an ounce, up 0.18% on the day.

“The range breakout targets $1,900 while the head-and-shoulders continuation confirmed in April targets $1,947. These patterns say gold can make a new all-time high in the 2H2020 with Q3 on our mind,” the analyst said.

Not only is gold’s technical outlook positive, but the bank noted that sentiment remains firm. According to the bank’s monthly rates and foreign exchange sentiment survey, gold is the third most popular risk-off asset, according to 13% of respondents.

“In other words, long gold trades are popular but it is not the leader of the pack. A sentiment dip remains a risk but with U.S. rates pinned to the ZLB, COVID-19 reopen risks, trade rhetoric returning and U.S. elections around the corner, we'd prefer to see sentiment much more bullish after risks dissipate to consider being a contrarian,” the analysts said.

Bank of America has been fairly bullish on gold since central banks have flooded financial markets with liquidity in reaction to the economic devastation created by the COVID-19 pandemic. In April, the bank said that it sees gold prices pushing to $3,000 an ounce within 18 months.

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