Gold prices have staged a four-day rally after having enjoyed a strong run since mid-September on expectations that the U.S. Federal Reserve would hold off on raising rates before the end of the year.
Analysts are now predicting further strength in the yellow metal as demand for physical gold should lend support to the interest rate related rally, and as weakness is starting to creep into the U.S. dollar.
Spot gold traded flat Thursday, off its three and a half month high of $1,184, down from $1,190 in the previous session, where it rallied 1.4 percent after weak data from the U.S. and China upped expectations of a 2016 Federal Reserve interest rate rise.
"The expectations of that Federal Reserve rate hike are going back and back. We did a poll in our base metals summit survey earlier this week and the majority of the audience are expecting a post December hike, those expectations are being pushed out," head of commodities research at Macquarie, Colin Hamilton told CNBC.
Weakness in the dollar has also backed the move in gold. The greenback is currently trading close to seven-week lows against a basket of currencies, with the euro up 2.3 percent against the dollar in the last two weeks, at around $1.14.
This follows sharp falls seen in the single currency earlier in the year, when it fell to its lowest level in 12 years against the dollar in March of $1.056 after the European Central Bank began its government bond buying program.
"The gold price has been driven by expectations of the U.S. dollar and as the next Fed hike gets pushed out to probably March 2016, I suspect that is what the futures markets is pricing in now, we will see gold prices move higher. It is also a safe haven demand that is driving the price higher," metals & mining analyst at BMO Capital Markets, Jessica Fung told CNBC.
"China as a consumer doesn't impact the gold price that much at this point in time. I think the market focus is really on the expectations and that U.S. Fed rate hike. I think gold and silver might have a ways to run as we continue to see the expectation of that rate hike pushed out though later into 2016," she added.
Data from UBS published last week showed gold positioning has been creeping higher in recent weeks. Edel Tully, a strategist at the bank, said appetite from key physical markets in the weeks ahead will be important, not only in terms of the impact on global supply and demand, but in terms of how this would affect investor sentiment.
ETF holdings of precious metals decreased in the last month, with the exception of gold according to Capital Economics.
The latest industry data also shows that retail demand for silver and gold coins has picked up strongly over the past, the group said in a note to clients published Thursday.
"You have the support from the potential renewed spike in risk aversion, which we see as positive for gold," head of G10 FX research at Credit Agricole, Valentin Marinov told CNBC.