Gold just ended its third straight week within the red, as investors rediscovered their love for a different safe-haven asset: the U.S. dollar.
The DXY dollar index ended Friday at $92.61 on Friday, its highest level of the year. The index has climbed by more than 1 percent within the past week. Meanwhile, gold prices are down 0.8 percent for the week, ending Friday at $1,314.80 an ounce.
However, the yellow metal will find favor again, according to Bank of America Merrill Lynch technical strategist Paul Ciana, as well as also a breakout could push the item to recapture highs not seen in half a decade.
“Gold prices have been forming a six-year long base,” Ciana told CNBC’s “Futures today” This kind of week. “within the technical world we like to say, the bigger the base, the higher in space. which’s what gold is usually doing.”
Gold prices need to break through the resistance level at $1,350 to $1,375, which could then confirm the six-year technical base as well as also set up a larger rally, he said. Prices moved as high as $1,369 in mid-April, although have failed to crack $1,370 so far This kind of year.
“As soon as This kind of $1,350 to $1,375 area goes, which I do think the item will later This kind of year mostly when the dollar rally kind of tempers itself as well as also neutralizes, which puts gold on the path to $1,450 so plenty of room there,” said Ciana.
Gold prices have not traded at $1,450 an ounce since May 2013. The precious metal has been in a years-long downward trend, holding below $1,400 since September 2013.
A rally in gold is usually part of the “bigger picture” of what’s happening inside the commodity markets, Ciana continued. He sees a secular commodity bull market in formation.
“If we look at the CRB index, our monthly chart, which is usually essentially the rising tide of commodity markets, they just broke out ending April,” Ciana explained. “They’ve closed just above $0, confirming an ascending triangle base.”
This kind of breakout sets up the commodity index for another 20 percent move higher over the next year or two, Ciana forecasted.
Even as a rising U.S. dollar has inflicted pain on gold prices in recent weeks, Ciana told CNBC which historical data shows which both assets could work their way higher together.
“When U.S. financial conditions are tightening, like they are today, compared to 2015, very early 2015, gold prices actually rallied about 12 percent as well as also the dollar index had rallied about 6 percent,” explained Ciana. “There are situations where they both can move in tandem for a short period of time.”
Those symbiotic moves don’t last, though, as well as also the inverse correlation eventually kicks back in, he added. In This kind of case, he predicts a divergence to bring about higher gold prices as well as also a neutral to lower dollar.