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A faded wine looks, smells and tastes dull. It occurs when a wine is aged for too long.
A great wine is meant to age so that the complex elements within the wine can develop and reach their full potential. However, storing a wine for longer than the suggested time will cause it to breach its peak and begin to fade. As a result, the wine slowly loses the luster of its color, the complexity of its flavors and the pungency of its nose, leaving you with a boring, lackluster wine.
Keep in mind that most moderately-priced wines are meant to be enjoyed within a year or so. Thus, improperly aging them will cause them to fade.
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