Gold prices will rise by less than previously expected, according to a new short-term forecast by Swiss bank UBS released Monday.

UBS strategist Edel Tully lowered the company's one-month forecast to $1,775 per troy ounce from $1,950. Tully also lowered the three-month forecast to $1,950 from $2,100.

Our core bullish view on gold remains unchanged and the light nature of spec positioning is a big positive, Tully said, but the earlier forecasts were overly ambitious given the recent slowdown in market momentum.

Among developments supporting a less ambitious price forecast is a reduction in the number of long investments in gold.

Following a whopping 5.2 million-ounce reduction in net longs, the Comex gold book sits at 19.98 million ounces, Tully said in a client note. Positioning is now at its lowest since July 2009, and just 60.4 percent of the all-time high of 33.08 million ounces recorded in early August. Indeed, at 20.7 percet this marks the largest percentage drop in net longs since August 2008.

Longer term, though, gold remains a bullish prospect, Tully said.

After the recent washout, gold positioning is far from extended and this is quite a bullish signal for price strength ahead, the analyst said. The 'clean' nature of current spec positions, along with physical and long-term demand, is creating a very healthy foundation for gold to climb from. We expect physical demand to be quite decent in the coming days, barring China where markets are closed for the week, but buyers there should return with vigour after the holidays.