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Hedge funds snap up gold, but where's it heading?

Hedge funds are snapping up gold, pushing their net long positions to levels not seen for almost two years. Meanwhile, analysts are split over what 2015 will hold for the precious metal.

Speculative investors bought gold for a fourth successive week at a "strong pace" upping long positions. Silver has also been bought for close to 12 weeks, but positioning remains "far from stretched", according to data from Bank of America Merrill Lynch.

Read MoreInvestors go long gold, short copper in oil freefall

An employee arranges one-kilogram gold bars for a photograph at a Tanaka Kikinzoku Kogyo K.K. store in Tokyo
Bloomberg via Getty Images

The bank said its indicators suggest investors remain bullish for precious metals, a view which is supported by a number of investment banks and economists, but targets for where the metal will end up by year end differ dramatically.

Gold prices jumped over 1 percent last week, topping $1,300 per troy ounce for the first time since the third quarter last year, as the euro tumbled to an 11-year low after the European Central Bank's new stimulus plans were revealed.

Commodity analysts at Citi said this "elevated" gold trading ties into its raised forecast for 2015 bullion prices to the mid- $1,200s level -- up from its $1,220 estimate in the fourth quarter of 2014. But the bank said the metal may well struggle to "firmly break-out too far above" $1,300.

Gold rallied on Tuesday after two sessions of losses following weakness in the dollar and equities, as major earning disappointed on Wall Street, ahead of the U.S. Federal Reserve policy meeting Wednesday. U.S. gold futures for delivery in February climbed almost $15 to trade at $1,295 per troy ounce Tuesday afternoon.

Head of commodities research at Capital Economics, Julian Jessop said he expected to see the price of gold rise to $1,400 by the end of 2015 and $1,470 in 2016, but expects the price of fellow precious metal silver to outperform gold.

Because the market for silver is smaller and because the metal is mined along with other metals, the commodity's price has to move by large amounts before supply is changed, Jessop explained. This makes the price of silver traditionally more volatile than that of gold.

"As a result, Silver has tended to out-perform gold when the prices of both are rising, but to under-perform when both are falling," Jessop said, raising forecasts for silver from $20 to $23 per ounce for end-2015.

Read MoreWall Street's collective forecast: More volatility

Goldman Sachs remains the most bearish on precious metals in the long-term, expecting gold to pick up its decline from the third quarter of this year, in line with the start of the U.S. Fed's rate hiking cycle. For now however, the latest move from the Swiss National Bank and weaker than expected U.S. data are supportive for the yellow metal, with the bank raising its three month gold forecast to $1,295.

Goldman predicts bullion will finish the year at around $1,262, up from earlier forecasts $1,200 before tanking to $1,089 in 2016.

"Net, absent a reversal in the US and global recovery, we expect only limited further upside to gold prices despite the recent European and Swiss monetary shifts, as these are likely already largely priced in. Nonetheless, we also see limited near-term catalysts for gold prices to retrace their recent gains," analysts at Goldman Sachs led by Max Layton said.

"As we move forward through 2015 however, we believe U.S. gold prices will resume their decline given our economists' expectation that the shift to above-trend growth in the US will continue, with easing financial and lending conditions and lower oil prices helping," they said