(Kitco News) - One of the biggest gold bulls on Wall Street is starting to sound a little more cautious as the precious metal pushes closer to $4,000 an ounce.
The commodity team at Bank of America was among the first to highlight the $4,000 target at the start of the year, saying it wouldn’t take much renewed investment demand to reach those levels.
However, with the target now in sight, BofA technical analyst Paul Ciana said the precious metal has achieved much of its upside potential and now appears slightly overbought.
“A variety of multiple time-frame technical signals and conditions warn of uptrend exhaustion as gold nears $4,000/oz,” he said. “If so, a consolidation or correction could follow in Q4. Trend-following/risk management favors raising stops, hedging, or reducing some long exposure. A contrarian trader view can consider 4–6-week puts.”
The comments come as spot gold trades at $3,960 an ounce, up nearly 2% on the day. Meanwhile, the precious metal has gained 50% so far this year, marking its best annual rally since 1979.
Ciana noted that this year’s rally is comparable to major bull markets in recent history. However, he added that those bull markets were often preceded by significant selloffs.
He pointed out that from the lows of 2015 to 2020, gold prices rallied 85% before sharply correcting 15% in 2022, and that the current rally has since lifted prices another 130%. However, he also noted that gold’s latest bullish cycle remains smaller compared to the rallies seen in the early 2000s and the 1970s.
“The 1970–1980 boom totaled +1,725% with a correction in the middle. The bust from 1980 into 1999 was about -59%,” said Ciana. “The 1999–2011 advance was about +640%, with a mid-cycle correction also occurring. A -38% bear market followed into 2015.”
Looking at gold’s potential, Ciana said that if the current bull rally matched the 400% gains seen after 2015, prices could break through $5,000 an ounce. If it mirrored the 2000s bull market, gold could trade closer to $7,000 an ounce.
Ciana added that while he doesn’t rule out those moves, he warns that the current rally is already mature and could be vulnerable to a mid-cycle correction, similar to previous bullish phases.
One particular technical pattern Ciana is watching is gold’s impressive weekly streak: the precious metal has closed higher for seven consecutive weeks.
However, he added that in all 11 previous instances, gold prices were lower four weeks later.
Ciana is also paying close attention to gold’s long-term moving averages. He noted that the yellow metal is currently about 21% above its 200-day moving average, “where peaks are increasingly common.”
He also observed that gold is roughly 70% above its 200-week moving average, “a condition seen only three times (Sept 2011, Mar 2008, May 2006).” Finally, gold is 140% above its 200-month moving average.
On the downside, Ciana sees initial support at $3,790 and warns of potential risks extending as low as $3,525.
