Citing “relentless” pressure on precious metal prices last year, Bank of America (NYSE:BAC) slashed its 2014 price forecast for gold by 11% and silver by 21%.
“Our continued bearish view is driven by the challenging macro-economic environment,” according to a BofA Merrill Lynch Global Research report.
Continue Reading Below
If investors continue to lessen their exposure to gold by selling the precious metal, the price could plummet to $1,000 an ounce, the report predicts.
“If investors stopped selling gold, prices could stabilize around $1,200/oz. Yet, this is not our base case and a more likely scenario is for investors to continue reducing their exposure. Our models suggest that this could take prices down to $1,000/oz,” the report states.
The report points to rising interest rates on10-year Treasury bonds rates and a “persistent” lack of inflation, which has seen the inflation rate hovering for months at about 1%, or half the Federal Reserve’s target rate of 2%.
Gold and other precious metals are often used by investors as a hedge against rising inflation.
BofA analysts reduced their 2014 gold price forecast to $1,150 an ounce and silver to $18.38 an ounce. Late last year BofA forecast gold at $1,294 an ounce, and silver at $26.38 an ounce in 2014.
Gold was recently selling for $1,226 an ounce and silver at $19.44.
After soaring in the wake of the 2008 financial crisis and subsequent recession, the price of gold fell 28% in 2013, closing out the year slightly above $1,200. The annual decline marked the first time that happened in over a decade. Silver, which had also been on a years-long winning streak, fell by 36% last year.
The report also refers to “early signs of a rebalancing in the gold market” which could “provide interesting entry points for investors.”
BofA said miners will likely adjust to the falling prices by scaling back operations which would in turn reduce supplies.