(Kitco News) - As bearish sentiment reigns in the gold market, one Swiss bank cut its short-term forecast for the metal by 13% and questions whether a floor may be nearby.

The bank expects prices to be $1,050 an ounce over the next month, down from a forecast of $1,200 an ounce back in March.

“These changes update our forecasts to take into account recent price action and bring them in line with current market conditions,” noted strategist Edel Tully and analyst Joni Teves in the report released Monday.

“We think weakness is likely going to build heading into the FOMC meeting in September,” they added.

Although U.S. economic data have not shown exceptional strength -- Friday’s nonfarm payrolls is as an example -- markets are increasingly expecting the Federal Open Market Committee to pull the trigger on rate hikes as early as September.

“The prospect of rising interest rates is acting as a tough hurdle, particularly if an environment of benign inflation persists, which suggests higher real yields and in turn a higher opportunity cost for holding gold,” they said, adding that despite price declines, the metal has struggled to attract bargain hunters.

Despite a pick-up in physical demand amid lower prices, the response has been subdued and appetite out of China has been particularly disappointing, the analysts noted.

“On several occasions in recent weeks, trading patterns showed Asia as the seller while prices recovered in the European/U.S. session. General feedback is that physical buyers in China are looking at $1,050 as a more attractive point of entry,” they said, adding that the fixation on this level suggests that there is a risk that the market would test it.

“Psychologically, the market seems to need to get this price out of its system,” they said. “While we would expect this level to have psychological significance for the market, from a volatility standpoint, a move towards this price would hardly be dramatic.”

Nevertheless, the analysts noted that any further weakness in the metal may start to propel gold buying.

“In spite of relatively disappointing response from physical markets thus far, we expect an improvement in this market segment and lead a recovery further out, especially as seasonality kicks in,” they said.

“A more convincing price floor should in turn prompt a correction in extreme short-positioning and allow gold to recover back above $1,100.”

By Sarah Benali of Kitco Newssbenali@kitco.com

Follow me on Twitter @SdBenali