By Clara Denina
LONDON (Reuters) - Gold's sharp gains on uncertainty over Britain's European Union membership are likely to come to an end, regardless of whether Britons vote to leave or remain in Thursday's referendum.
Prices <XAU=> hit their highest since August 2014 last week as the $5-trillion a year gold market rose with other "safe" assets, such as German bunds, the Swiss franc and Japan's yen.
Recent polls suggest an even split and although investors are worried about the economic and market fallout of a "Brexit", bullion's uncertainty premium is not expected to last.
An "In" vote is seen as quickly unwinding gold's five percent gain in June, as appetite for risk rises and focus returns to the U.S. economy, analysts and fund managers say.
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"A clear win for the Remain side will see U.S. yields rise as the potential drag on the global economy and risk appetite is removed," said ICBC Standard Bank analyst Thomas Kendall.
"Gold in dollars would likely drop four to five percent," Kendall added.
The metal is negatively correlated to rising U.S. real yields because the opportunity cost of holding it increases.
And while some see a "Leave" result as a risk-off event that could see gold rally, others see lower prices if the dollar rises and oil falls. Gold is often seen as a hedge against rising inflation.
"If investors become overly worried, it is likely that the greenback strengthens with implications for earnings and industry group positioning as precious metals and commodities weaken," Citi analyst Tobias Levkovich said.
Another reason for gold to see a sharp, albeit short-lived fall is that in times of financial stress, it can be used as a source of cash to cover losses elsewhere.
Sharp declines in equities, for example, could push investors to liquidate gold positions to free up capital.
Gold fell to a near 14-month low in September 2008, at the height of the 2008-2009 financial crisis, and was for a short time positively correlated with riskier assets, as liquidity dried up.
It later increased sharply in value, reacting to central banks' cutting interest rates and devaluing currencies.
While a "Brexit" vote might not be as disruptive as the 2008-2009 U.S. subprime crisis, currency swings would impact gold and investor sentiment could be hurt by uncertainty.
Christian Gerlach, portfolio manager at GAM Investment Management, returned to gold at the start of June as "stress and risk-off forces" multiplied, but the position is small and would not be increased immediately even in a "Brexit" scenario.
"You may have a Brexit, but what kind of Brexit and what kind of conditions," Gerlach said.
Investors are also looking at who has been buying.
"Although we like gold, the fact that it has been very aggressively bought for a few months makes us cautious" said Ashok Shah, investment director at London & Capital, which has $3.5 billion of assets under management.
"If there was going to be a 'Leave' vote, any mini flight to safety would dissipate quickly, because a lot of the money in gold is not long term, but speculative, hedge fund leveraged money."
(Additional reporting by Eric Onstad and Pratima Desai; Editing by Veronica Brown and Alexander Smith)