Higher U.S. Treasury yields - which have risen sharply over the past two months - dampen the attractiveness of holding assets such as gold which offer little yield. A stronger dollar, meanwhile, is negative because gold futures, which are traded in dollars, become more expensive for investors who use other currencies.
Victor Thianpiriya, commodity analyst at Australia and New Zealand (ANZ) Banking Group agrees the bottom for gold has not been reached.
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"I think we need to see ETF selling stop. There is not enough demand to absorb the current pace of selling," he said. Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, currently stand at a 4-year low of 947 tonnes, according to ANZ.
Thianpiriya, who expects gold will hit $1,150 over next three months, noted that the recent upside in gold is merely a relief rally after the precious metal broke through $1,200.
"Business in India has really slowed down with the import restrictions. Chinese demand remains strong but it's not enough to absorb weight of selling," he said.
Over the past year, the Indian government has stepped up efforts to moderate gold demand including raising import duties and restricting banks from importing the precious metal on a consignment basis - an arrangement where lenders can hold stocks of gold without actually paying for it until they find a buyer for it.
Tom Essaye, president, Kinsale Trading, however, believes that the Indian government's recent steps to stem the fall in the rupee could potentially support the country's demand for gold. Earlier this week, the Reserve Bank of India tightened rules for trading currency derivatives on Indian exchanges.
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"Most people are underestimating how much of a weight that [a weak rupee] has been on gold. The record low rupee makes gold very, very expensive. The Indian government trying to stabilize the rupee is positive for gold," Essaye said. India is the world's largest consumer of gold, closely followed by China.
Jonathan Barratt, founder of Barratt's Bulletin, a commodity newsletter, said another factor that could support to gold is the risk of inflationary pressures stemming from higher energy prices.
"We have the prospects of a cost push inflationary environment, given where energy prices are heading, rational investors will stop selling ETFs," said Barratt, who started to add to his gold positions at the $1,210 level.
—By CNBC's Ansuya Harjani