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Investing.com -- Bank of America said several technical indicators suggest gold’s powerful rally could be losing steam as prices approach the key $4,000-per-ounce level.
“Earlier this year we presented bullish setups for precious metals,” BofA said, noting that “gold joined the broader rally by breaking higher from its triangle formation.”
The move “unlocked significant upside targets that have since been reached,” but the bank now warns that “multiple time frame technical signals and conditions warn of uptrend exhaustion as gold nears $4,000/oz.”
According to BofA, gold is “up seven consecutive weeks in a row,” a pattern that has historically preceded short-term weakness.
“Since 1983, gold was lower 11 of 11 times four weeks later and 10 of 11 times five weeks later,” the analysts said. Gold is also trading “~21% above its 200-day moving average” and “~70% above its 200-week moving average,” levels previously associated with market peaks.
Momentum signals also point to fatigue. The “14-day RSI has been overbought for a month,” while the “14-week RSI shows a three-peaked bearish divergence.”
The analysts added that “multiple time frames are showing DeMark exhaustion counts,” with daily, weekly, and monthly charts all triggering sell signals.
Even so, BofA said the current boom remains smaller than those of the 1970s and 2000s, suggesting “further upside over the next few years is certainly possible.”
Still, the bank advised caution, citing “round-number resistance at $4,000” and warning that a pullback could follow before the next leg higher toward $5,000.