Dubai: Gold prices are likely to retrace in the short-term as a firm dollar could reduce the appeal of the alternative asset.

Prices may fall to $1,090 (Dh4,000.30) an ounce, down 5 per cent from current levels. That would also mean a 50 per cent retracement from the a decade-old rally seen from 2001 through 2010.

“The focus at the moment is the global decline in inflation which primarily have been caused by the dramatic slump in global oil prices. Though falling inflation, rising dollar, continued demand for stocks, rising US interest rates would continue to weigh on gold,” said Ole S. Hansen, head of commodity strategy at Saxo Bank.

Brent crude fell as traders waited for Libya’s Sharara oilfield to restart after an official said gunmen who attacked the site had departed.

Oil is trading in a bear market amid signs that global supply growth is outpacing demand.

Leading producers in the Organisation of Petroleum Exporting Countries (Opec) have resisted calls to cut output as the US pumps at the fastest pace in more than 30 years.

“The outlook for the dollar remain overwhelmingly positive and this actually remains the biggest threat to the dollars further progress as the rally constantly will require new logs on the fire as traders otherwise would be inclined to book profit,” said Hansen.

“Near-term we see a chance of rally continuing towards 1.2 against the euro but that should probably be it,” Hansen added.

ABN Amro NV also forecasts the precious metal may end this year at $1,100 an ounce and finish 2015 at $800.

Swiss referendum

“The big joker remains the Swiss Gold referendum on November 30. So far opinion polls are ruling out a yes vote. However if we should see a surprise yes vote the SNB would be obliged to buy a significant amount of gold,” said Hansen.

The proposal from the “Save Our Swiss Gold” proponents would force the central bank to build its bullion position up to at least 20 per cent of total assets from 8 per cent today.

Holding 522 billion Swiss francs ($544 billion) of assets in its coffers, the Swiss National Bank would have to buy at least 1,500 tons of gold, costing about $56.3 billion at current prices, to get to the required threshold by 2019.

Those purchases, equal to about 7 per cent of annual global demand, would trigger an 18 percent rally, giving a lift to gold bulls who have suffered 32 per cent losses in the past two years, Bank of America Corp estimates.

With polls showing voters split before the November 30 referendum, the SNB and national government are warning that such a move could undermine efforts to prevent the franc from surging against the euro and erode the bank’s annual dividend distribution to regional governments.

“On its own this would be a supportive factor, but much would depend on whether other countries follow suit,” Bank of Nova Scotia said in a note.