Gold Declines as Fed Officials Warn on Inflation Expectations

Gold prices dropped after Federal Reserve officials said they should be on the lookout for signs of a decline in the public’s expectations for U.S. inflation.

Policy makers said the effects of weaker economic growth abroad are “likely to be quite limited” in the U.S., according to the minutes of the central bank’s October meeting released today in Washington. The Fed ended its debt purchases at the gathering, curbing demand for gold as a store of value.

After a rally in the first six months of the year, spot gold fell 9 percent last quarter as gains for the U.S. economy spurred speculation that the central bank is moving closer to raising interest rates. Fed officials said last month that lower energy costs may hold down consumer costs in the near term.

“Inflation does not seem to be a concern at the moment,” Chris Gaffney, the senior market strategist at EverBank Wealth Management in St. Louis, said in a telephone interview. “The fact that they see a limited effect of a global slowdown is being read by the market as hawkish.”

Gold for immediate delivery fell 1.2 percent to settle at $1,182.68 an ounce, according to Bloomberg generic prices. On Nov. 7, the metal touched $1,132.16, the lowest since April 2010.

“The committee should remain attentive to evidence of a possible downward shift in longer-term inflation expectations,” the Fed minutes showed.

Dollar Rally

The dollar approached a five-year high against a basket of 10 currencies, and energy futures have tumbled, cutting demand for gold as a hedge against rising consumer costs. The outlook for higher interest rates cuts the allure of the metal, which generally offers investors returns through increasing prices.

Before the release of the Fed minutes, gold futures for December delivery dropped 0.3 percent to settle at $1,193.90 on the Comex in New York. The price then extended declines in electronic trading.

In 2014, futures have dropped 0.7 percent. The metal in 2013 tumbled 28 percent, ending a 12-year bull run. A second straight annual drop would mark the longest slump since 1998.

Gold climbed 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs near zero percent in a bid to shore up economic growth. Buying accelerated after the financial crisis spurred global central banks to increase money supplies.

Inflation Muted

The runaway inflation that some investors were betting on hasn’t happened, and U.S. equities have climbed to records. Gold’s tumble last year was the biggest in three decades. The labor market has had “solid job gains,” Fed policy makers said Oct. 29 as they ended their third round of asset purchases.

Silver for immediate delivery fell 0.3 percent to $16.1455 an ounce.

Spot platinum dropped 1.5 percent to $1,188.38 an ounce. The gold-platinum ratio rose to 0.9953 after reaching 0.9988.

On Oct. 16, gold briefly traded at a premium to platinum for the first time since April 26, 2013. Gold closed at a premium on April 24, 2013.

Spot palladium fell 1.3 percent to $764.25 an ounce today.

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