(Kitco News) - Analysts at Bank of America Merrill Lynch see more headwinds for gold prices in 2014 as U.S. monetary policy starts to “normalize.”
In a note released on Friday, the bank lowered its gold forecast by 17% and is expecting to see an average price of $1,294 an ounce in 2014.
The bank said, “a gradual increase of U.S. real interest rates should be accompanied by lower gold prices in 2014, a key reason behind the reduction of price forecasts."
Although the bank has become more cautious in 2014, they are not ready to call an end to the gold trade just yet; the analysts said they do see some near-term potential for gold prices related to the budget and debt-ceiling talks on going in Washington.
“Given the contentious political climate in Washington, these discussions may not be smooth, so some safe-haven buying is likely,” they said in a report. “However, beyond mid-October, investors likely refocus on the gradual normalization of monetary policy in the U.S…”
The bank is also maintaining its long-term bullish forecast for gold as physical demand continues to support prices. For the fourth quarter of 2013, the bank is expecting gold to average around $1,300 an ounce.
Looking at the silver market, BAML analysts are also lowering their average 2014 forecast for the white metal; however, they are a little bit more optimistic and they expected silver to outperform gold.
The analysts are expecting silver prices to average about $26.38 an ounce for next year, which is down 4.5% from their previous forecast of $27.63 per ounce.
The analysts explained that a rebound in economic activity would support silver prices as the metal also has industrial uses. They added that they have already seen silver imports into China increase in August.
Although BAML analysts have lowered their forecast for gold and silver, they are still not as bearish as some of the other big banks who have recently changed out outlook on precious metals.
On Sept. 13, Goldman Sachs made headlines as they expected gold to drop to $1,000 an ounce in the near-term. However in the near- and-long-term, Goldman expects prices to average around $1,200 an ounce.
By Neils Christensen of Kitco News firstname.lastname@example.org