(Bloomberg) -- Goldman Sachs says that a strategic buying opportunity may open up in gold should prices drop substantially below $1,250 an ounce, with bullion offering investors a way to protect themselves against risks to global growth and limits to central banks' effectiveness.

While the decline over the past month, which has accelerated this week, has been in line with the bank's bearish outlook, there could be a case for purchases if the sell-off deepens, according to analysts including Jeffrey Currie and Max Layton. On Friday, bullion was less than $5 above the $1,250 level and headed for the biggest weekly slump in more than three years.

After a stellar first half as the Federal Reserve stood pat on rates and political risk jumped with the U.K.'s Brexit vote, bullion's rally has started to unravel. It's headed for the biggest weekly loss in 2016 as the odds of tighter Fed policy by the year-end have increased, buoying the dollar.

The metal's retreat has taken place against a backdrop of investor concern that the world's leading central banks, including the European Central Bank and Bank of Japan, may now be approaching the limits of what monetary policy can do to stoke growth.

'STRATEGIC' OPPORTUNITY

"We would view a gold sell-off substantially below $1,250 as a strategic buying opportunity, given substantial downside risks to global growth remain, and given that the market is likely to remain concerned about the ability of monetary policy to respond to any potential shocks to growth," Currie and Layton wrote in the Oct. 6 report.

Bullion for immediate delivery traded at $1,252.83 an ounce at 2:52 p.m. in Singapore, near the lowest in four months. After surging in the first half, prices were little changed in the third quarter before slumping this month. It's down 4.8% this week as the Bloomberg Dollar Spot Index has risen.

Goldman said it remains broadly neutral on the outlook for bullion through the year-end after the correction. The bank noted that the drop in prices hadn't been driven by sales of bullion from holdings in ETFs, which have expanded this week as of Thursday.

"The move lower does not appear to be driven by physical gold ETF liquidation," the analysts said. "The drivers of strong physical ETF and bar demand for gold during 2016 are likely to remain intact, including continued strong physical demand for gold as a strategic hedge."

In June, Goldman raised its three-, six- and 12-month targets by $100, seeing prices at $1,300, $1,280, $1,250 over those periods. The risks to its year-end forecast of $1,280 may now be skewed to the downside, the bank said in the report. It sees the probability of a U.S. hike through year-end at 65%, in line with market expectations.

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