By Paul Ploumis 24 Jul 2015 Last updated at 06:23:16 GMT

(Kitco News) - With gold prices tumbling earlier in the week, one UK-based research firm questions how much lower the metal can go.

“[W]e suggested that the gold price could fall as low as $850 per ounce in a worst case scenario,” say analysts at Capital Economics.

“We stand by that analysis. Nonetheless, our base case is that prices should find good support only a little below current levels (our end-Q3 forecast is $1,050) and will actually end the year higher (at $1,200),” they add.

With gold’s decline closely correlated with the rise in the U.S. dollar, the analysts say that an $850/oz price tag for the yellow metal is possible if the dollar rises by another 20%, while a rise in treasuries would also lower gold prices.

Gold investors have been concerned over U.S. monetary policy tightening, with the market anticipating the Federal Reserve to hike rates later this year.

“However, we think these perspectives give too little credit for the structural shift in demand due to the rapid growth of China and India, which make such long-term comparisons much less meaningful,” they note, adding that gold’s bull market actually started before the Fed even cut rates to near-zero and continued even when they raised rates by roughly 5% in 2006.

“Our base case assumes that further dollar gains will be limited and that the drag from gradual Fed tightening will be offset by a pick-up in demand from consumers and central banks in emerging markets.

We also think that Western investors could quickly regain their appetite for safe havens and inflation hedges.”

Courtesy: Kitco News