The "ongoing headwinds" to the fundamentals for gold and silver are "heavily influenced by the lack of bullish macroeconomic drivers," the strategists wrote in their latest global markets weekly note.
After the recession, non-commercial market participants initially raised their exposure to precious metals because of fears that money-printing would boost inflation, and that the Federal Reserve was debasing the US dollar.
But the global economy has shown "pockets of disinflation" for structural and cyclical reasons and the US dollar has appreciated lately against other currencies. "A change in either of these headwinds does not look imminent, in our view," the BofA Merrill Lynch strategists said.
They stressed that they removed their $2,000 target for the price of gold in mid-April and that a lack of investment buying could push it to $1,200 in the coming weeks.
"We are now bringing our period average forecasts in line with the target and see gold average $1,478/oz this year, 12% below previous expectations," they said.
They added that "the fundamental backdrop for silver remains weak" and lowered their target by 25% to $24.4/oz on average, warning that it could fall below $20/oz in the coming months.
In a report last month, Marcus Grubb, managing director and investment strategist at the World Gold Council the market development organization for the gold industry said that gold still remained a "widely under-owned asset."
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Gold holdings account for around 1% of all financial assets, and this low ownership rate is in stark contrast to higher levels seen in past decades, Grubb said.
This is because of the precious metal's scarcity but also because of the "unprecedented growth in other financial assets," he said.
Between 2000 and 2012, debt markets increased to almost $90 trillion from $25 trillion, global equity markets increased to $51 trillion from $31 trillion, while the derivatives market is estimated at over $600 trillion by the International Monetary Fund (IMF), Grubb pointed out.
Private investment stock of gold is $1.9 trillion, according to his research, which also says gold ownership should rise.
Despite lowering their price target, the BofA Merrill Lynch analysts believe that the bull market in gold is just "pausing."
"We believe the structural rally is not broken, and we see several scenarios that could push prices higher again," they said.
In one of these scenarios, "more affluent emerging markets could increase metal purchases to an extent that gold could trade at $2,000/oz, even if investors bought only a third of the gold they purchased in 2012," they said.
Gold was trading at $1,384.2 on Wednesday afternoon, 0.4% up on the day; silver was 0.2% up at $22.2.
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