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Down on Gold? Here's Why You Should Be Buying

Attractive valuation plus renewed demand for physical gold could be putting a bottom in for the metal that has been riding a wild bout of volatility.

Gold rallied 3 percent last week, primarily thanks to surging demand for the actual metal rather than the funds that have become so popular with investors trying to cash in on the price surge in recent years.

One analysis suggests that even though the near term remains somewhat murky, the longer outlook remains solid.

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"Depressed price levels were perceived as an attractive entry point by physical buyers and bargain hunters," ETF Securities said. "The longer-term fundamental outlook for gold has not changed and appears robust in our view, despite the sharp falls seen in recent weeks."

Gold has taken a beating since hitting an intermediate high in October, due to several factors including profit-taking, dwindling inflation fears and a general move to stocks that has been fueled by aggressive Federal Reserve monetary easing policies.

Investors this year have yanked nearly $11 billion out of the SPDR Gold exchange-traded fund, more than double that of any other ETF, according to Index Universe.

But ETF Securities said demand will pick up in other areas.

(Read More: Paulson Expects More Volatility in Gold)

"Frenzy among coin and jewelry buyers from the U.S. to China and India was behind the recovery of the gold price last week," the firm said.

Jewelers and consumers in India reportedly paid a $10 per ounce premium as the festival and wedding season approaches and demand for jewelry increases.

Shanghai Gold Exchange volumes hit record highs during the week, while long positions increased 33 percent, ETF Securities said.

(Read More: Gold Rises 1%, Holds Near One-Week High)

To be sure, gold remains a controversial investment given its unpredictable nature over the past several months.

Multiple analysts have cut forecasts, with the most recent coming from UBS, which pared its 2013 outlook from $1,740 to $1,600 and 2014 to $1,625 from $1,700.

And technicians interviewed by Reuters suggest gold faces resistance at $1,550 and could yet face a fall as low as $1,100.

Market Insider with Patti Domm