Gold experts have further cut back price forecasts for the metal this year after a sluggish first half, a quarterly Reuters poll showed on Monday, while gains in the dollar and a dearth of physical demand are likely to clip any attempted return to last September's record high for the rest of the year.
The precious metal is still on track to post another record-breaking average in 2012, extending its bull run into a twelfth year as ultra-loose monetary policy in key economies keeps interest rates at rock bottom.
But the median spot price forecast has been cut to $1,685 an ounce from $1,750 projected in a similar poll at the end of the first quarter, and $1,765 forecast at the start of the year.
"In the main, the dollar will be holding gold back, but the dollar can be trumped as the key driver for gold - and the key to that is heightened economic or political turmoil," said Ross Norman, chief executive of precious metals trader Sharps Pixley.
"The economic crisis has a long way to play out, and as such, there should also be ongoing volatility in prices."
While gold prices have averaged just over $1,640 so far this year, beating last year's record average spot price of $1,565, their overall performance has been unimpressive.
Gold ended June little better than flat on the year after its worst first-half showing since 2007.
Prices are expected to climb to $1,677.50 in the third quarter and $1,750 in the fourth. In 2013, the 29 forecasters surveyed expect them to extend their rally with another record average price of $1,791.25.
While strength in the dollar resulting from the burgeoning euro zone debt crisis has proved a powerful drag on prices, expectations that attention could switch to the flagging U.S. economy later in the year has kept the metal underpinned.
Suggestions that the Federal Reserve could be forced to further loosen monetary policy, which sparked a few sharp rallies in the first half, still have the power to drive prices higher.
"Our positive price forecast is based on the assumption that central banks will need to deliver more monetary easing in order to support economic growth," BNP Paribas analyst Anne-Laure Tremblay said.
"In particular, we expect the Fed to launch a third round of quantitative easing sooner rather than later. Monetary accommodation should in turn take the dollar lower and inflation expectations higher, both supportive factors for gold."
But with no end in sight to Europe's debt woes, and with the dollar and U.S. Treasuries still acting as the safe-haven assets of choice -- a status once also afforded gold -- the U.S. currency is likely to hold firm this year, keeping gold in check.
Silver, meanwhile, the standout performer of early 2011, will likely fail to revisit the peaks of last year as a dearth of fresh investment puts a heavy drag on prices.
The metal, which has underperformed gold this year, will fail to match last year's average price of $35 an ounce, the poll respondents concluded. The median price forecast by the poll was $31.67 an ounce, rising a touch to $32.75 in 2013.
The metal is suffering from record-high mine supply, weak offtake from industrial users in the electronics industry, evaporating demand from the photography sector, and greater caution among speculative investors after two major price slumps last year.
"Silver is in a chronic supply surplus and is already carrying heavy inventory. While we expect demand to grow faster than supply out to 2015, we do not think this will be sufficiently so to close the gap between the two," RBS analyst Nikos Kavalis said.
"As such, silver will continue to rely on investors to absorb (and keep hold to) excess supply. For the long term, therefore, our price outlook remains bearish and we believe that once the tide turns lower for gold and the yellow metal starts trending downwards, so too will silver."
Silver prices, which averaged $31 in the first half of the year, are expected to average $31 an ounce in the third quarter, rising to $33.01 in the last three months of the year.
"With QE3 possible in September, we see scope for a rebound of silver prices," Bank of America Merrill Lynch analyst Michael Widmer said. "Yet, given that possible quantitative easing will in all likelihood be accompanied by a slowdown in economic growth, we believe silver will underperform gold.")