Bank of America's technical team has issued a significant warning, noting that the current price action in gold bears a striking resemblance to the historic peaks in 1980 and 2011, suggesting a potential drop to $3,315. The team has also outlined a three-phase strategy for entering the market.
Just before the U.S. market opened on Thursday, reports emerged that Iran has requested Yemen's Houthi forces to close the Bab el-Mandeb strait should the U.S. attack Iranian power infrastructure. Precious metals subsequently experienced a sharp decline. Spot gold fell over 2% on the news, touching a low of $3,974.01 per ounce, while spot silver tumbled as much as 4% intraday.
Market Drivers and Geopolitical Tensions
Nikos Tzabouras, a senior market analyst at Tradu.com, part of Jefferies, stated that gold's movements are primarily driven by two factors: inflation and geopolitical tensions. Ongoing U.S. military strikes against Iran and the disruption of shipping through the Strait of Hormuz have pushed oil prices higher, intensifying market worries about rising inflation risks.
The recent escalation, occurring just days after a fragile ceasefire broke down, has seen the U.S. resume a maritime blockade of Iranian ports and conduct two rounds of airstrikes on Iranian coastal defense and missile sites, with Iran retaliating against U.S. bases in the region. These developments have kept markets on edge over the dispute for control of the Strait of Hormuz, contributing to a broadly higher trend for crude oil this week.
Inflation and Monetary Policy Impact
Rising energy prices have lifted inflation expectations, prompting the market to increase the probability of further Federal Reserve rate hikes. This dynamic diminishes the appeal of non-yielding safe-haven assets like gold. According to the CME FedWatch Tool, traders are now pricing in a 51% chance of a 25-basis-point rate hike in September.
Federal Reserve Chair Kevin Warsh stated this week that the central bank is committed to bringing inflation down but did not provide a specific policy path. Markets will continue to parse subsequent remarks from officials, including Dallas Fed President Lorie Logan and Fed Vice Chair Philip Jefferson, for further policy signals.
Weaker-than-expected U.S. Consumer Price Index and Producer Price Index data for June, released earlier this week, initially provided a rebound for precious metals. Tzabouras believes that the cooling inflation temporarily reduces the urgency for the Fed to continue tightening, leaving room for a subsequent gold price recovery. However, he noted that if oil prices climb again, the disinflation trend will likely be difficult to sustain. He added that the most favorable scenario for gold would be a de-escalation of U.S.-Iran tensions and a return to negotiations.
Bank of America's Technical Outlook and Strategy
Bank of America's technical strategists have issued a more bearish assessment based on chart patterns and historical cycles. They warn that the correction in gold this year may have significant further downside. The bank compares the current price action to the bear markets that followed the historic tops in 1980 and 2011, noting that several bearish technical signals have converged.
The signals listed by Bank of America include: the formation of a "death cross," net-long positioning remaining elevated, warning candlestick patterns at the top, a TD Sequential indicator signaling trend exhaustion, and the Relative Strength Index (RSI) having previously spiked to 90 at the high. The bank points out that the RSI reaching 90 is a feature highly similar to the 1980 and 2011 peaks.
The team led by Bank of America technical strategist Paul Ciana stated, "The current correction has lasted only 24 weeks, compared to the preceding advance which lasted 121 weeks. While the gold price has broken below the 38.2% Fibonacci retracement level at $4,149, the duration of this pullback remains notably short relative to the prior lengthy uptrend."
Data shows spot gold has fallen over 7% year-to-date, with a maximum three-month decline reaching 16.8%. The Bank of America report notes that since 1970, the three major bear markets in gold have all retraced at least 50% of the preceding rally. If 2026 marks a long-term cyclical top similar to 1980 and 2011, historical patterns suggest a risk of the price falling towards $3,315.
Beyond this projection, another key downside target derived from a 174-week historical regression model is approximately $3,605. Meanwhile, the 50% Fibonacci retracement level of the entire uptrend is around $3,702, which the bank also views as a significant target.
Despite the overall cautious view, Bank of America does not expect a one-way, uninterrupted decline for gold. Ciana commented, "Gold could first rebound to the $4,325-$4,500 range, before subsequently declining again to test the 50% retracement target around $3,702."
The bank believes this path would resemble the evolution after the 2011 peak, where a staged rebound followed the top formation before a longer-term decline set in.
Staged Investment Approach
Regarding investment strategy, Bank of America advocates for a phased accumulation approach rather than attempting to time the bottom all at once. Ciana advised, "We suggest starting to build a small position once the price breaks below $4,000. If it falls further into the $3,700-$3,600 range, positions should be increased. Finally, the full allocation should be completed when the price declines into the $3,450-$3,250 range."
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