As per Bank of America, gold prices have been pushed down by decreased physical demand and a "lack of interest" from investors, however, prices could still rise beyond $2,000 an ounce in 2022. Spot gold prices have fallen below $1,800 for every ounce in 2021, a loss of nearly 6%. In 2020, gold prices rose by around 22%, settling for the very first time beyond $2,000 for the first time. According to observers, gold prices benefited last year from investors flocking to the perceived protection of gold as the COVID-19 epidemic progressed, as well as low-interest rates imposed by central banks while the health crisis continued.

Gold prices hovered around $1,790 per ounce. Bank of America predicts that costs will average $2,063 in the year 2022. However, the bank's commodity research team stated in a note published that the gold market has been facing hurdles in recent weeks following a "furious" run in the very first half of the year 2020. The commodity has been "stepping the tight line between inflation and rates" in the meanwhile.

Analysts at Bank of America warned clients to keep an eye on three major challenges in the gold market:

Physical demand is declining. Central bank purchases of gold are a cornerstone of the market, but BofA claimed there are signs of "fading" demand. The World Gold Council said that central bank gold purchases in 2020 were around 60% lower than the previous year. During the pandemic, gold's performance increased reserve portfolios, prompting some central banks to see "an excellent time to collect money to bolster their ailing economies," according to WGC, which outlined the circumstances that led to the decrease in gold purchases.

Lackluster jewelry market said that the  Jewelry sales have been 'disappointing'. According to BofA, the pandemic worsened softness in India's primary jewelry sector and contributed to a decline in sales in China last year. China is among the greatest markets for luxury products in the world. "While activity has increased [year over year], it stays below longer-term ranges," according to the experts.

Investor buying has slowed. According to the note, another challenge is deterioration in traditional physical markets, which "has been worsened by a lack of interest among investors." Following "consistent" inflows during the very first half of the year 2020, assets under management at physically-backed metals ETFs fell. In recent years, the vehicles' assets under management have risen to $193 billion. Changes in the global macroeconomic background have stifled investment in gold, as well as the gold market "has failed to price in reflation," according to the bank. As Congress considers enacting a $1.9 trillion fiscal stimulus pack, inflation expectations have risen.

Simultaneously, the introduction of coronavirus vaccines has boosted economic growth possibilities. Increased inflation expectations, according to BofA, "is usually bullish gold on its own." "However, an increase in break-even has passed directly into nominal rates. As a consequence, real rates, that are traditionally the primary driver of the yellow metal, have been stuck in a narrow band since autumn "According to BofA. According to Bloomberg statistics, the 10-year break-even rate, a measure of market inflation expectations, hit 2.2 percent this week, the highest point since 2014.

The gap in yield between 10-year Treasuries as well as 10-year TreasuryInflation-Protected Securities, or TIPS, is the breakeven rate. Concerns that central banks may begin tightening monetary policy in the face of a worldwide economic recovery have influenced the disparity between real rates — which are adjusted for inflation — and nominal rates, according to the bank.

"The ramifications of this anxiety were mirrored in mini-taper tantrum earlier this year when the gold prices fell 5% while 10-year rates rose 23 basis points," according to BofA. Bonds and other assets that pay interest may be more appealing to investors than gold, that pays no interest.