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
"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
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
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
Despite lowering their price target, the BofA Merrill Lynch
analysts believe that the bull market in gold is just
"We believe the structural rally is not broken, and we see
several scenarios that could push prices higher again," they
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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