Early 2014 the best time to buy gold

Investors and consumers looking to take advantage of lower gold prices are advised to buy next quarter, with some analysts tipping prices to recover later, although they are set to post this year the biggest loss since 1981.

But some doubt the attractiveness of gold as a medium-term investment, saying its function as a hedge against inflation is likely to wane as interest rates increase after the US Federal Reserve starts its gradual withdrawal of ultra-stimulative monetary policies that resulted in near-zero interest rates.

Low interest rates encouraged gold buying as negative real interest rates - gross interest rates minus inflation - saw investors trim bank deposits and seek alternative investments to hedge wealth erosion by inflation.

This year, the price of gold was on track to record its first decline in 13 years on an annual average basis, said a research report by Germany's Commerzbank.

It has fallen about 27 per cent this year as investors, mostly Western ones, redeemed exchange-traded funds backed by more than 800 tonnes of gold in anticipation of the Fed's tapering of quantitative easing. The extra supply was absorbed primarily by Asians buying jewellery and investing in bars and coins, attracted by the lower prices.

Hong Kong is a key conduit for the import of gold into the mainland, and a sharp fall in gold price in the second quarter saw a buying frenzy by mainland tourists at Hong Kong's gold shops, which helped support a brief rebound.

Gold also lost its lustre this year as stock markets in developed nations soared to record levels amid low interest rates while inflation remained tame despite fears over ultra-low rates.