In its latest Commodity Strategy report, the bank says that gold is highly-coveted "for the time being." Trade is expected to figure at $1,575 by the end of the third quarter 2011 and $1,650 by the end of the second quarter of 2012. This is backed mostly by strong demand from China and India, which jointly account for 63 per cent of the global demand. 

In China, jewellery sales are up 20 per cent year-on-year, helped by the government's decision to remove restrictions on investing on physically-backed gold exchange traded funds. In India, jewellery demand rose 12 per cent year on year despite a 25 per cent increase in average gold prices. Higher demand is likely during the Indian wedding season in the second and third quarters.

"We expect demand to remain robust in the coming supported by emerging markets, but investors need to keep a watchful eye on interest rates," said Eliane Tanner, commodity strategist for Bank Sarasin.

"A sustained rise will see investors unwind their gold positions in favour of higher yielding assets, so we no longer recommend long-term gold exposure. Investors should be ready to take profits on a reversal in interest rates. That could be as early as mid-2012," she added.