NEW YORK ( MainStreet) — Investing in gold stocks and gold ETFs is a strategy used to protect against inflation, and the pull of the metal is strengthening its attraction to investors.

"Gold equities in general are very cheap right now as many have come by down 50% this year alone," Matthew Michael, an emerging market debt and commodities product manager at Schroders Investment Management in London. "We are investing in them for the future."

Among the gold holdings at Schroders are Rand Gold, Alamos, Franco Nevada and Source Gold ETF for physical gold exposure.

"We favor the mid-cap sector for gold stocks rather than large caps some of whom have diversified into other metals to diversify their revenues," said Michael at Schroders' International Media Conference in London last week.

The Federal Reserve began to keep the short-term federal funds rate at a range of zero to 0.25% since late 2008, according to RateWatch, to help stimulate the market and ultimately reduce the risk of deflation.

"The Fed and major central banks drastically fear a deflationary spiral and are willing to take risk on the other side because they believe they can fight inflation should they ever create it," said Matt Toms, chartered financial analyst and managing director of public fixed income with ING Investment Management. "They fear deflation more than inflation because they can't go below 0 with interest rates or other tools."

The treasury has lagged the S&P 500 by 20% in 2013, and according to Morningstar, the treasury rates have a 10-yr yield of 2.73%. While rising interest rates and the uncertainty around interest rates increases volatility, the ultimate cost of quantitative easing (QE) remains unknown.

"It's the acceleration of volatility while QE is unwound that would not be warmly received by markets because it may increase market volatility and higher volatility makes investors demand higher risk premiums," said Derek Sasveld, chartered financial analyst and head of asset allocation with ING at the firm's annual year end press briefing.

Although initially announced in September, tapering of QE has been delayed.

"As for tapering, there's a link between very low interest rates and a fall in productivity gain in the future which can lead to a lack of high inflation coming through," said Azad Zangana, a Schroders European economist.

Schroders outlook for 2014 is that interest rates and growth will dominate.

"We believe interest rates will not run out of control because valuation is relatively fair or not far from being fair, recovery is sensitive to low interest rates and we are closer to deflation than hyper inflation which gives central banks more room to maneuver," said Aymeric Forest, a multi-asset fund manager with Schroders.

In the meantime, due to fears of a deflationary spiral major central banks have looked to risk.