Gold Prices Face Risk of Major Correction, BofA Warns, Citing Historical Peak Patterns

Gold's year-to-date correction may have much further to run, according to Bank of America technical strategists who see troubling parallels to the prolonged bear markets that followed the metal's secular peaks in 1980 and 2011. In a technical research note, the firm highlighted a confluence of bearish signals that it says raises the risk of a sustained decline for the precious metal.

Bearish Technicals and Historical Echoes

Strategists led by Paul Ciana pointed to several technical warnings that have emerged during gold's recent price action. They note the current 24-week correction appears brief compared to the 121-week advance that preceded it, suggesting the selloff may be incomplete. After falling as much as 16.8% over the past three months, gold is down 7.5% year-to-date.

BofA's analysis identified several specific red flags:

• A death cross formation, a widely watched bearish technical pattern.
• An RSI (Relative Strength Index) reading that hit 90 at the recent high, a level of over-extension consistent with the major tops in 1980 and 2011.
• Other bearish indicators including elevated net-long positioning, an "ominous peak candle," and a TD Sequential exhaustion signal.

Potential Downside Price Levels

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Historically, the three major gold bear markets since 1970 have each retraced at least 50% of the prior bull market advance, the BofA note stated. If the current cycle follows a similar path, strategists see a significant risk of further downside.

The firm identified the 50% Fibonacci retracement level near $3,702 as a key target in a deeper selloff. Other methodologies cited in the report point to potential downside levels of $3,605 and, in a scenario analogous to previous secular peaks, a move toward $3,315.

A Staged Buying Strategy

Despite the cautionary outlook, BofA is not advising investors to abandon gold entirely. Instead, the firm laid out a tiered accumulation strategy, suggesting investors could use further weakness as a buying opportunity. The strategists noted that a near-term countertrend rally toward the $4,325–$4,500 range could occur before the next major leg lower materializes.

The bank's proposed approach involves modest accumulation below $4,000, with increased buying in the $3,700–$3,600 area. They would become more fully allocated if prices fall into the $3,450–$3,250 range, according to the note.