Bank of America strategist says a stronger dollar won’t be a hurdle for gold much longer
Despite the recent recovery in the dollar, a Bank of America Merrill Lynch strategist sees gold capturing multi-year highs in the near term, reports Kitco. After a steady downtrend which bottomed around the turn of the year, the article writes that the greenback has seemingly recovered some of its luster in recent weeks.
Yet BAML technical strategist Paul Ciana doesn’t believe a stronger dollar will be a hurdle for gold much longer. According to the article, Ciana sees the $1,350-1,375 range as a key resistance level for gold to overcome, and he expects the metal to do that sometime later this year.
Last month, gold came close to breaching this level as it briefly traded at $1,369 an ounce before settling lower. In a recent interview, Ciana explained why the breakout has been years in the making and why he thinks it’s just a matter of time before gold moves to the next stage.
“Gold prices have been forming a six-year long base,” he said. “In the technical world we like to say, the bigger the base, the higher in space. That’s what gold is doing.”
Once gold passes $1,375, Ciana expects the metal to breeze ahead to $1,450 an ounce, a level he says is reachable before the end of the year. Should his prediction come true, gold will climb to its highest point since May 2013.
The article states that an important driver of the breakout will be gold’s ability to travel upwards alongside the dollar. Traditionally, the greenback is known to have a strong inverse correlation with the metal, and gold has posted some of its best performances during times of a weaker dollar.
Ciana said that the two assets will temporarily abandon this relationship to go higher independent of each other. This will be made possible, said the strategist, by the current conditions of the U.S. economy, more specifically the Fed’s monetary policy.
“When U.S. financial conditions are tightening, like they are today, compared to 2015, very early 2015, gold prices actually rallied about 12% and the dollar index had rallied about 6 percent,” he said. “There are situations where they both can move in tandem for a short period of time.”
Ciana doesn’t expect this to last, however, as he sees the rally in the dollar as a temporary relief. Before long, the greenback should correct from current levels and continue along the path it treaded for much of 2017. When this happens, Ciana says the standard correlation will be restored and gold will continue trending up.