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Why gold bugs should brace for an ‘awful’ 2014

Gold had a tumultuous run in 2013 but don't expect any respite in the new year, said UBS, which anticipates double-digit percentage losses over the next 12 months.

"For investors who have gold, it's just going to be an awful year again," said Dominic Schnider, head of non-traditional asset classes at UBS Wealth Management, who sees the precious metal falling to $1,050 an ounce this year, 13 percent below current levels.

(Read more: Gold sees biggest annual loss in 3 decades)

"People have been talking about [the Federal Reserve's] taper, but I would really think about rate hikes. If you make a 12-month forecast you need to look into 2015 and rate hikes are on the cards," he said. A rising interest rate environment typically makes owning gold more expensive as it is not an income-producing asset.

With the global economic growth and inflation mix looking promising in 2014, the risk-reward balance is now skewed toward risky assets, Schnider added.

AP

Gold suffered its biggest annual loss in 32 years in 2013, plunging 28 percent over the course of the year, with the Fed's decision to scale back its massive stimulus program and a benign global inflation outlook sapping demand for the metal.

Central bank liquidity has been a major pillar of support that has driven gold to record high near $1,920 in September 2011. Spot gold was last quoted at $1,213.

UBS is not alone it its bearish outlook for the precious metal. U.S. investment bank Goldman Sachs, for instance, predicts bullion is set to fall at least 15 percent this year.

(Read more: Goldman predicts steep losses for gold in 2014)

Making a case for buying gold, Joe Magyer, senior analyst at the Motley Fool says investors should not downplay the risk of inflation raising its head this year.

"I think the time to be worried about inflation is the time when nobody else is worried, so that would probably be now. If you bought gold at $1,900 an ounce, I don't know why you wouldn't be very interested at $1,200 an ounce," Magyer said.

For investors keen on gaining exposure to the metal, strategists recommend buying physical bullion while avoiding miners.

(Read more: Forget stocks & buy gold in 2014: Strategist)

"Stay away from the miners – margins are going to come under pressure, things don't look pretty. If you really want to have gold as an asset of last resort, hold it physically," Schnider of UBS said.

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

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