Nevertheless, ANZ says that its expectation of a gold recovery to $1,450 by end-2014 remains intact.
(Read more: Does China plan to use gold to internationalize the yuan?)
"China is expected to remain the driving force behind global physical gold demand, maintaining its position as the world's top consumer for the second year in a row. We expect this demand will more than offset the weight of physical gold selling by exchange traded funds in the long term," Thianpiriya said.
"Indian demand could also surprise on the upside...some relaxation of the import restrictions imposed last year seem to be in the offing, though we view a full lifting of import controls as unlikely," he added.
Market watchers, however, remains divided over the prospects for the precious metal, with Goldman Sachs' chief commodity strategist Jeffrey Currie reiterating his forecast for gold to fall to $1,050 over the next 12 months.
"Our U.S. economists continue to expect strong growth in 2014 coupled with low inflation and as a result we forecast further downside for gold prices in 2014 with an end of year target of $1,050 per ounce," Currie wrote in a report this week.
(Read more: Gold to tank in 2014: Goldman Sachs)
"However, we believe that the path will be more of a slow grind lower over the course of the year unlike last year as markets will wait for strong economic data to confirm that U.S. economic growth is accelerating and that the Federal Reserve will continue to reduce the accommodative monetary policy," he said.
Additionally, he said the potential for further emerging market currency depreciation in countries could impact demand given the price sensitive nature of jewelry demand in local currency terms.
—By CNBC's Ansuya Harjani. Follow her on Twitter: