NEW YORK (Commodity Online): Goldman Sachs has cut next year gold price forecast to $1,810 per ounce from the $1,940 an ounce projected earlier in the year. Its 2014 forecast for gold prices is $1,750 per troy 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,” said the American multinational investment bank in a snippet.

The American firm also lowered its six-month gold price forecast from $1,840 an ounce to $1,805/Oz and its 12-month forecast at $1,800/Oz from $1,940 per ounce.

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.

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.

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.

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 modeling 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,” analyst at Goldman added.

Despite several strong trends in gold’s favor, 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.

“To understand this dislocation we expand our modeling 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,” Goldman concluded.