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A 999.9 fine gold 100 troy ounce Engelhard gold bar.SHANNON STAPLETON/Reuters

Goldman Sachs lowered its gold price forecasts across the board on Wednesday, noting increased chances for weakness, putting its three-month average price target at $1,825 (U.S.) an ounce.

"While we see potential for higher gold prices in early 2013, we see growing downside risks. As a result, we find that the risk-reward of holding a long gold position is diminishing," the bank said.

The firm's six-month gold price forecast is $1,805, and its 12-month forecast at $1,800. The average 2013 gold price is seen at $1,810. Its 2014 forecast for gold prices is $1,750. This compares to their previous three-, six- and 12-month forecast of $1,840, $1,940 and $1,940, respectively. The 2014 forecast is new.

Given current fundamentals regarding real interest rates and Federal Reserve monetary policy, gold prices around $1,725 are likely near fair value, as is the current net speculative positioning in gold futures, according to Commodity Futures Trading Commission data, the firm said.

Goldman said it sees the gold cycle turning on an improving U.S. economic recovery. In the first half of 2013, the firm's economists see U.S. economic growth slowing, but then accelerating in the second half of the year.

In the short term, gold prices could benefit from the likelihood of more monetary easing and weaker growth, although some catalysts are likely priced in.

"Medium-term, however, the gold outlook is caught between the opposing forces of more Fed easing and a gradual increase in U.S. real rates on better U.S. economic growth. Our expanded modelling suggests that the improving U.S. growth outlook will outweigh further Fed balance sheet expansion and that the cycle in gold prices will likely turn in 2013. Risks to our growth outlook remain elevated, however, especially given uncertainty around the fiscal cliff, making calling the peak in gold prices a difficult exercise," Goldman said.

Despite several strong trends in gold's favour, including the steady decline in U.S. real interest rates, increased central bank gold holdings and quantitative easing by the Fed, gold prices have gyrated between $1,550 and $1,800 since October 2011. Ordinarily these trends would be supportive, they said.

"To understand this dislocation we expand our modelling of gold prices to include the impact of the U.S. Federal Reserve easing. We find that gold prices 'look through' easing that does not require Fed balance sheet expansion –like Operation Twist – increasing instead on announcements of easing through expansion on the Fed's balance sheet," they said.

Goldman is rolling its long December gold position into a long April 2013 position and selling an $1,850 ounce call and buying a $1,575 put to protect against price weakness.