Gold Prices Decline as Federal Reserve Sees No Inflation Risk

Gold declined as the Federal Reserve said it sees a muted inflation risk from continued stimulus, lowering demand for the precious metal as a hedge against rising consumer costs.

With inflation expected to remain well below its 2 percent goal, the Federal Open Market Committee doesn’t “face a trade-off between its employment and inflation objectives, and an expansion of aggregate demand would result in further progress relative to both objectives,” according to minutes of their April 29-30 meeting released today.

The metal slumped 28 percent last year as the U.S. economy rebounded and inflation stayed low. Holdings in the world’s largest exchange-traded product backed by bullion have dropped to the lowest since December 2008. Hedge funds cut their gold net-long position by 8.3 percent to 94,329 futures and options in the week ended May 13, the biggest drop in a month, U.S. government data show.

“People see less need for gold if there is no threat of inflation,” Michael Gayed, the chief investment strategist at Pension Partners LLC in New York, said in a telephone interview.

Gold for immediate delivery fell 0.3 percent to $1,290.68 an ounce at 2:32 p.m. in New York, according to Bloomberg generic pricing.

On the Comex in New York, gold futures for June delivery closed 0.5 percent lower at $1,288.10 an ounce. The contract settled before the Fed statement was released.

The Fed pared its monthly asset buying to $45 billion in April, its fourth straight $10 billion cut, and said further reductions in measured steps are likely. Bullion climbed 70 percent from December 2008 to June 2011 as the central bank bought debt and held borrowing costs near zero percent.

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