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Why gold prices will remain lower for longer

After gold futures fell to a five week low on weak Chinese demand this week, analysts told CNBC prices would remain depressed over the coming months.

Gold futures fell 1.1 percent to $1,290.80 an ounce on the Comex division of the New York Mercantile Exchange on Thursday, their lowest level since June 18. Prices nudged up slightly to $1,291.10 in early trade on Friday morning in Asia.

The dip represented a blip in an otherwise broadly positive trend for the precious metal this year, which has rallied around 7 percent year to date.

"There are clear reasons why gold shouldn't be trading higher," Dominic Schnider, Head Commodities & APAC Forex at UBS Wealth Management, told CNBC Asia's "Capital Connection" on Thursday.

Better data out of China – where second quarter growth surprised to the upside at 7.5 percent year on year – and better sentiment in the U.S. mean appetite for safe haven assets like gold should stay relatively muted, Schnider told CNBC.

"Then you have the central banks that tell you 'we'll do whatever it takes' so we shouldn't be surprised that the market is completely numb towards risk," he added.

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Schnider also pointed to lower demand from emerging markets as another reason why gold prices should remain low.

On Thursday, the China Gold Association reported a 19 percent drop in gold demand from January to June. Demand for gold bars fell 62 percent during in the first six months of the year, while gold coin demand also fell 42 percent.

"It's most likely we will see lower prices from here," added Ric Spooner, chief market analyst at CMC Markets. "The key driver for that will be a stronger U.S. dollar, caused by relatively good economic performance in the U.S. which I suspect will improve over the next few months."

Other analysts CNBC spoke to, however, said worries over geopolitical risk would gain traction again over the next few months, re-fueling appetite for gold.

Gold coins and bullion
Lyle Leduc | Photographer's Choice RF | Getty Images
Gold coins and bullion

"We're going to get a delayed reaction to all these geopolitical events that are happening around the world," said Andrew Su, CEO at Compass Global Markets, who sees gold rallying to around $1,400 per ounce by the end of the third quarter.

"In particular: Ukraine and Russia, and also China and Japan problems' are far from over. So this catch up in risk aversion will be reflected in the gold price over the next two months," he added.

Tensions between the international community and Russia have heightened in recent weeks after a Malaysia commercial jet crashed in eastern Ukraine, suspected to be hit by a surface-to-air missile allegedly launched by pro-Russian separatists. Meanwhile, territorial disputes between China and Japan over islands in the East China Sea remain a concern.

Su told CNBC gold had fallen out of favor with investors in recent times because equity markets had become more attractive by comparison.

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"There's been low volatility in the equity markets and they continue to rise – so people haven't been as focused on gold. Also over the past few years people have lost a lot of money in gold as its price fell from $1,900 to $1,200 an ounce," he added.

Gold suffered heavy losses last year as the Fed's decision to taper its asset buying program sapped demand for the precious metal.

Additionally, Su told CNBC he was not convinced by the recent Chinese data which suggested gold demand is waning there.

"Data out of China is quite unreliable so I don't pay much attention to that. Demand from India and China remains quite strong, due to low prices and recent weakness in the dollar versus both the yuan and the rupee," he added.