Goldman Sachs has raised its 12-month gold price forecast by...

Goldman Sachs has raised its 12-month gold price forecast by more than 20 percent to $1,650 an ounce as the slowing U.S. recovery and falling interest rates drive more investor flows into bullion.

"With the prospects for another round of quantitative easing in the United States increasingly strong, US real interest rates continue to fall," said Goldman in a note dated Oct. 11.

"With 10-year TIPS yields now below 50 bps, we expect gold prices to continue to climb, and we are now raising our 12-month gold price forecast to $1,650 an ounce."

Goldman Sachs said its economics team expects to see the Federal Reserve announce its intention to resume quantitative easing as early as the November policy meeting.

"We see this acting as a strong catalyst to carry gold prices to the higher levels that we now forecast. While real gold prices have moved well above their long-term average near $450 an ounce, we expect them to be well supported until US monetary policy tightens," the bank said.

Goldman also said it recommended initiating a long COMEX December 2011 GCZ1 position.

Spot gold XAU= has risen by more than 20 percent so far this year and hit record highs above $1,360 an ounce this month, fuelled by investors diversifying out of the U.S. dollar, stocks and bonds which have become increasingly volatile.