Is sentiment toward gold shifting again?

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Gold has staged a big comeback in the recent weeks, rebounding over 13 percent since hitting a near three-year low late June, raising the question of whether investor sentiment toward the embattled precious metal is about to shift yet again.

The metal, which traded close to a three-week high of $1,336 on Tuesday, has been supported by short covering and robust physical buying especially from China. Latest data from the China Gold Association (CGA) on Monday showed that the country's gold consumption rose 54 percent in the first half of the year, compared with the year-ago period.

Separately, in a sign that investment demand may be returning, holdings in the world's largest gold ETF SPDR Gold Trust rose by nearly 2 metric tons to 911.13 metric tons on Friday, representing the first increase since June 10.

(Read more: Pro: Three reasons gold will hit $1,600 by year-end)

"There is a clear conflict between physical and speculative demand right now, but as things stand, China's buying spree has been the bigger influence right now and has driven leveraged funds to cover shorts," said Chris Weston, chief market strategist at IG Markets, adding that if gold moves above $1,348, it could test the $1,370 level and then $1,400.

Citing tighter supply in the physical market, Barry Dawes, head of resources at Paradigm Securities, said there's a strong case for buying gold.

"The physical demand for gold is robust and we're seeing premiums in Asia that you don't see in other parts of the world," Dawes said. "The physical market for gold is now really tightening up and the shenanigans being played by hedge funds and bullion and investment banks may just be coming to an end."

(Read more: Central banks losing taste for gold as buying power falls)

Victor Thianpiriya, commodity analyst at Australia and New Zealand (ANZ) Banking Group, who sees gold ending the year at $1,300, disagrees that the physical market will face any meaningful tightness in the near-term, noting that a slowdown in Indian consumption will free up some supply.

India imported $2.9 billion of gold and silver in July, down a third from the same period a year earlier, according to Reuters.

Watch out for tapering

Another headwind for gold, according to some gold bears, is the Federal Reserve's scaling back its monthly bond-buying program, which will likely result in higher Treasury yields, dampening the attractiveness of gold—an asset that pays neither interest nor dividends.

"For the moment, with the Fed remaining concerned about low inflation and therefore keeping asset purchases in place, bond yields are likely to move lower in the short term, supporting gold's move higher," Daniel Hynes, head of commodity strategy at CIMB, wrote in a research report. "Ultimately, we still expect the program to be tapered off by year-end, and we believe this will most certainly result in a weaker gold price."

(Read more: Here's what gold bulls need to see)

"The days of a bull run in gold are over," he said.

But Peter Elston, head of Asia Pacific strategy and asset allocation at Aberdeen Asset Management, disagrees that the end of U.S. monetary stimulus will be negative for gold.

"The big question is [how] all this extraordinary loose monetary policy is going to end," he said. "The likelihood is it's going to be a crash [back into deflation] or inflation taking off. Both of which will be good for gold. If we have deflation, that's going to mean more central bank support."

(Read more: Gartman: 'Unusual circumstance' in gold)

"You are getting to the point where gold is starting to look interesting again," Elston said.

—By CNBC's Ansuya Harjani; Follow her on Twitter @Ansuya_H