Today, BofA Merrill Lynch commodities team, led by metals strategist Michael Widmer, lowered the bank's forecasts for gold prices in 2013, 2014, and 2015, citing investor focus on an eventual normalization of Federal Reserve monetary policy.

Despite the forecast reductions, though, the BofA analysts say they "remain longer-term bulls" on the shiny yellow metal.

BAML's 2013 average gold price forecast was lowered 4% to $1419 an ounce (from $1478), while its 2014 forecast dropped 17% to $1294 (from $1563) and its 2015 forecast dropped 18% to $1356 (from $1654).

Widmer argues in a note to clients that after the fiscal battles in Washington are sorted out in October, "investors likely refocus on the gradual normalisation of monetary policy in the U.S., suggesting that gold prices could fall into 2014."

"Interest rates measure the opportunity costs of owning a non-yielding asset," says Widmer. "Therefore, they are the transmission channel from the real economy to the precious metal ... suggesting that 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."

By 2016, however, BAML analysts expect the bull market in gold to make a comeback.

In today's report, Widmer points clients to a note he published in late May that explains why:

However, looking further out, we see further potential upside to gold prices. Our models show, for instance, that the importance of investors as marginal buyers could subside gradually (Chart 21). This trend is heavily influenced by rising affluence in emerging markets, which should result in more spending on luxury goods like jewelry.

In fact, we estimate that jewelry demand may become so pronounced by 2016 that prices could trade above $1,500/oz even if investors were net sellers. Looking at sensitivities from a different angle, we estimate investors would need to buy merely 600t of gold to sustain prices at $2,000/oz by 2016, compared to non-commercial purchases of 1,798t in 2012.

The chart Widmer references is shown below.

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