Bullion is set to fall at least 15 percent next year, the bank said in a report of the top 10 market themes for 2014 this week, which warned of the growing downside risk for commodities.
The decline would bring gold down to $1,057 an ounce -- prices not seen since early 2010.
Gold suffered a sharp fall this week as better-than-expected U.S. economic data raised the possibility that the Federal Reserve may start scaling back its $85-billion-per-month bond-buying program earlier than anticipated.
According to some market watchers, gold has yet to fully adjust to the reality of tapering, and is vulnerable to further weakness when the central bank finally begins to wind down its monetary stimulus -- a major pillar of support that has driven gold to record high near $1,920 in September 2011.
"Gold is extremely sensitive to the Fed tapering monetary stimulus. Back in September when we had a surprise announcement from the Fed that we're not going to taper anytime soon, we saw gold rally 5 percent," Matthew Grossman, senior equity strategist at T-3 live.com.
"And then just a couple of days ago,
Gold bulls, however, remain unfazed. Victor Thianpiriya, commodities analyst at ANZ, expects the metal to hit $1,450 by end-2014, or 16 percent higher than current levels, driven by robust physical demand from China -- the world's largest jewelry market.
"China has surprised the market on how strong demand has been. There's also potential for Indian demand to come back," he said.
Chinese consumer demand totaled 210 metric tons in the third quarter, a rise of 18 percent compared to the same period last year, according to the World Gold council. In India, however, consumption fell 32 percent on year to 148 metric tons, due to government's crackdown on gold imports.
Thianpiriya said he doesn't expect gold to get caught in a major sell-off when the Fed decides to taper. "Gold has priced a lot of that in. We don't think the reaction of markets will be quite the same," he said.