Goldman Sachs (GS) predicts a "significant decline" in gold in 2014, following losses of around 26 percent in the previous metal so far this year.
Bullion is set to fall at least 15 percent next year, the bank said in a report of the top 10 market themes for 2014 this week, which warned of the growing downside risk for commodities.
The decline would bring gold down to $1,057 an ounce -- prices not seen since early 2010.
Gold suffered a sharp fall this week as better-than-expected U.S. economic data raised the possibility that the Federal Reserve may start scaling back its $85-billion-per-month bond-buying program earlier than anticipated.
According to some market watchers, gold has yet to fully adjust to the reality of tapering, and is vulnerable to further weakness when the central bank finally begins to wind down its monetary stimulus -- a major pillar of support that has driven gold to record high near $1,920 in September 2011.
"Gold is extremely sensitive to the Fed tapering monetary stimulus. Back in September when we had a surprise announcement from the Fed that we're not going to taper anytime soon, we saw gold rally 5 percent," Matthew Grossman, senior equity strategist at T-3 live.com.
"And then just a couple of days ago, %VIRTUAL-article-sponsoredlinks%the Fed minutes came out and they said taper is more likely sooner than later. And what happened? Gold fell 3 percent. We're seeing a very high correlation with that," Grossman said.
Gold bulls, however, remain unfazed. Victor Thianpiriya, commodities analyst at ANZ, expects the metal to hit $1,450 by end-2014, or 16 percent higher than current levels, driven by robust physical demand from China -- the world's largest jewelry market.
"China has surprised the market on how strong demand has been. There's also potential for Indian demand to come back," he said.
Chinese consumer demand totaled 210 metric tons in the third quarter, a rise of 18 percent compared to the same period last year, according to the World Gold council. In India, however, consumption fell 32 percent on year to 148 metric tons, due to government's crackdown on gold imports.
Thianpiriya said he doesn't expect gold to get caught in a major sell-off when the Fed decides to taper. "Gold has priced a lot of that in. We don't think the reaction of markets will be quite the same," he said.
What's involved: You can buy gold bars or coins from coin dealers across the country. Many coin dealers have online businesses that will ship gold directly to your home.
Pros: You have the gold in your possession, avoiding any risk of third-party misconduct that other methods of investing in gold entail. Some investors enjoy the coin-collecting aspect of gold bullion coins.
Cons: You'll pay a markup to the current spot price to buy physical gold and might have to accept a discount when you sell it back. Also, you have to find and pay for a safe place to store your gold.
What's involved: Some coin dealers offer pool accounts, which allow you to buy gold but arrange to have it stored with the dealer rather than taking delivery. At any time, you then have the option either to sell the gold back or arrange to have the dealer send you a physical coin or bar corresponding to your pool-account position.
Pros: You have all the benefits of owning gold, but the dealer remains responsible for its care. You avoid dealing with shipping and insurance costs and have the assurance that it's held in a secure facility. The premiums for buying and discounts for selling also tend to be smaller than with physical gold.
Cons: To take possession of the gold, you'll have to pay shipping costs and other fees. You also have to trust that the dealer running the pool account will take all necessary steps to protect it from theft or other dangers.
What's involved: Gold futures contracts allow you to buy the right to take delivery of gold at a specified future date. Futures contracts tend to track the changing spot price of gold, paying you profits when prices rise and losing money when they fall. Most futures investors sell back the contract before it expires, never taking delivery of the physical gold underlying the contract.
Pros: You get the potential financial benefits of owning gold without worrying about storing it. You also don't have to come up with the full value of the underlying gold, as futures contracts require only a small margin balance covering a fraction of the gold's total value.
Cons: Futures contracts are only available through specialized brokerage accounts, and there are commissions involved. Most futures contracts may provide too much exposure, as a standard contract corresponds to 100 ounces, worth about $140,000 at current prices. You may have that much in your portfolio to invest, but putting it all into gold futures could give you too much exposure to one commodity.
What's involved: Exchange-traded funds like SPDR Gold (GLD) own vast holdings of gold bullion. Each share of SPDR Gold has a value of just under a tenth of an ounce of gold, and those shares rise and fall with the price of gold bullion.
Pros: Gold ETFs take responsibility for storage and protection of the gold in their possession, saving you the hassle and cost of owning physical gold.
Cons: Although many gold ETFs own physical gold, some gold ETFs use derivatives rather than bullion to track changing gold prices. For those ETFs, you run the risk that the derivatives involved won't move in lockstep with gold prices, potentially causing you to miss out on a gold-price increase.
What's involved: Hundreds of public companies mine gold. When gold prices rise, they earn more for the gold they produce, tying their value to that of the yellow metal itself.
Pros: Unlike other investments, mining stocks can actually produce income. Some miners even pay dividends to shareholders.
Cons: Mining stocks don't always track the price of gold, as other factors such as labor disputes and production costs can cause miners to suffer financial difficulties even when gold prices are high. Lately, gold-mining stocks have had far worse returns than bullion due to rising costs and falling profit margins.
Each of these five ways to add gold to your portfolio has pros and cons. But if you see the value of having gold among your investments, they're all worth considering to give you the gold exposure you want.