Bank of America is looking for $2,100 gold price by Q2
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In a report published Wednesday, the second biggest bank in America said that gold's fundamental prospects look strong as inflation remains persistently elevated and economic concerns continue to grow with weakness in the labor market, tightening liquidity and a "brittle" credit markets.
At the same time, gold's technical outlook paints bullish pictures. Bank of America technical strategist Paul Ciana, the lead author of the report, wrote that gold's and silver's break-out moves have emboldened the precious metals market. He added that gold's rally to its all-time high of $2,078 could signal the start of a two-year bull run, which could push prices above $2,500 an ounce.
However, he added that in the current environment, his initial target is above $2,100 an ounce.
"The daily chart of gold prices shows a bullish continuation pattern called a pennant (a small triangle). It was confirmed on the April 4, 2023, rally above $2,000/oz. Technical theory suggests this pattern forms mid-trend and so the next leg of the uptrend has begun with upside to 2078, 2118 and possibly 2195 in 2023," Ciana said in his report.
The bullish outlook comes as gold prices hold on to Tuesday's breakout gains. June gold futures last traded at $2,038.80 an ounce, relatively flat on the day.
While Ciana has a bullish bias toward gold, he added that there is a risk that the market could be seen as overbought as it makes a run to $2,078. He noted that if the daily Relative Strength Index (RSI), a momentum indicator, breaches 70 points, it could signal a consolidation move or a correction for gold.
On the downside, he said that gold remains in an uptrend as long as support holds at $1,938 an ounce.
Adding to gold's bullish outlook, Ciana noted that the precious metal has continuously hit record highs against the Japanese yen since mid-2022; it is on pace hit long-term price targets of ¥285,000 an ounce.
Meanwhile, it might only be a matter of time before gold pushes to €2,000 an ounce.
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"A bull flag pattern that formed in 2021 has favored a long-term uptrend to the 2200s. Gold/Euro must rally above 1902 to eliminate the risk of a double top forming," he said.
Looking at silver, Ciana sees room for prices to move higher.
"A double breakout for silver occurred on April 4, 2023, above a once bearish trend line and the neckline of a cup and handle bottom that targets the mid-$29s," he said.
However, he also warns investors that there is a little more risk of a correction at current levels as the market is overbought.
"A weekly close above $24.70-25.00 would support a medium-term bullish outlook after shorter-term overbought conditions recede," he said.
May silver futures last traded at 25.140 an ounce, up 0.16% on the day.
Despite the risks in silver, Ciana said that he expects the precious metals to outperform equities, oil prices, copper and bonds.