Goldman Sachs said it remained neutral on gold prices until the end of this year, citing a recent string of slightly disappointing US economic data and expectations of a "dovish" tapering by the US Federal Reserve.
The Fed, which begins a two-day policy meeting on Tuesday, is widely expected to announce it will begin curbing its $85 billion monthly bond purchases by $10 billion - a smaller reduction than previously anticipated.
The bank said its expectations of a "dovish" taper and gold's recent decline will likely limit the downside to the metal's prices in the near term.
But the bank continues to expect gold prices to resume their decline heading into 2014 as it expects data to confirm acceleration in US economic growth, needing a less accommodative monetary policy.
Goldman left its 2014 gold price forecast unchanged at $1,050 an ounce.
"A more hawkish taper than we currently expect would likely precipitate a decline in gold prices given the rebound in speculative positioning since June," Goldman analysts said.
The bank said the stress on emerging market economies with current account deficits could accelerate the decline in gold prices as it forces such countries to slow their domestic gold demand, imports and reserve accumulation.
Gold hovered just above a five-week low on Tuesday as traders waited for guidance on when the Federal Reserve will begin tapering its massive economic stimulus.
Spot gold was up 0.68 per cent to $1,322.36 and Comex Gold was up 0.30 per cent at $1,321.6 an ounce at 0829 GMT.
