A number of factors have helped prop up the market. The Bank of Japan has announced additional monetary easing and the European Central Bank is likely to follow. Gold demand has also benefited from geopolitical shocks, notably the crisis in Ukraine, which have underlined its appeal as a safe haven. Central banks have remained net buyers, especially in emerging economies.

On the supply side, industry sources suggest prices have already fallen to levels which are not far above the cost of mining new gold. Admittedly, mining costs could themselves fall because of lower energy prices and efficiency savings, and weak demand could mean that supply is still ample even if some production is cut. But the downside for the gold price from current levels is surely now limited.

As for the upside, there are several positives. Demand from households in emerging economies is likely to strengthen as incomes increase. Gold's safe-haven status could lead to a revival of interest from Western investors in the event of a renewed escalation of the crisis in the eurozone, fresh geopolitical shocks, or any nervousness in equity and bond markets prompted by the Fed's tightening moves.

In the meantime, central banks are set to remain net purchasers. We continue to expect the bulk of official buying to come from developing countries, but would not completely dismiss the prospect of new purchases by the European Central Bank as part of a large-scale programme of QE.

Overall, it seems reasonable to expect gold to retest the upper end of its post-2013 trading range at some point in the next year or two. A rebound to $1,400 would represent a sizeable 17 percent gain from current levels at a time when the valuations of many other assets, notably developed market equities and bonds, are looking increasingly stretched.

The author is head of commodities research at Capital Economics, a London-based independent macroeconomics research company.