Swiss bank UBS AG on Thursday slashed by 18 per cent its earlier gold price forecast for 2012 to $1,680 an ounce from $2,050 an ounce spurred by positive observations of a slowly improving fiscal health in most major economies.

Spot gold, which has gathered a strength of 5.9 per cent this year, has so far averaged only $1,691.33 an ounce in the first three months of 2012, according to Bloomberg calculations.

"A continuing U.S. recovery, material erosion in Fed quantitative easing expectations, rising Treasury yields, a stronger dollar and questions surrounding the durability of the Fed's low-until-2014 rate pledge all combine to act as the prime culprits that cause us to pare back, for now, our previously aggressive call," Edel Tully, UBS analyst, said in a statement.

On Thursday, gold hit the dirt road against the US dollar, which rose against other major currencies. The US dollar index jumped 0.2 per cent, triggered by moderated prospects of another round of quantitative easing form the Federal Reserve. Gold reached $1,649 an ounce, down by $12 from Wednesday's close.

Moreover, China's inactive construction activity has sent sliding and eventually hurting commodity appetite, including on the safe haven yellow metal.

"The view that the U.S. economic recovery is looking more sustainable is becoming increasingly accepted," the UBS analyst said.

"Gold is at risk, for it needs persistent inflows of investor money to keep it on its upward trajectory."

The precious yellow metal gold hit a record high of $1,921.15 an ounce last September. It averaged about $1,572 an ounce in 2011.

"Gold is moving off the centre-stage position it occupied for most of last year... We're looking for a softer gold price in the second quarter but a sharp recovery in the gold price in the second half," Tully said.