Gold trade coming back, if you can wait 2 years - Bank of America: "It's unlikely we go higher than 75 basis points

Gold will come under further pressure over the course of the year as the Federal Reserve moves closer to lifting rates, but prospects for the precious metal looks far more promising in the next few years, according to Bank of America Merrill Lynch.

"Right now, investors are not in the mood for holding gold because they see the Fed raising rates. So, I think in the next three months you'll see downside risk, $1,100 an ounce is likely," Francisco Blanch, commodities analyst at Bank of America Merrill Lynch told CNBC.

"But if you look out 2-3 years, things are a lot brighter for gold," he said.

Gold kicked off the year with a bang, rising around 8 percent in January. However, the yellow meal has since erased most of its gains as a stronger dollar – driven by rate hike expectations –and gains in equities dim its appeal. Spot gold last traded around the $1,210 level.

Blanch's positive longer-term outlook for gold is driven by two factors.

First, the growing phenomenon of negative-yielding bonds, which makes gold look attractive in comparison.

"There are a growing number of government bonds basically yielding zero or negative. As the number increases, I think a lot of investors are going to wonder why they are holding a liability as opposed to holding an outright asset like gold," he said.

"Once the Fed hikes are out of the way, we have a base for gold to recover. There's scope for gold to rise to $1,500-$1,600 within the next two years," he said.