The Fed said on Dec. 18 it will cut monthly asset purchases, known as quantitative easing, to $75 billion from $85 billion. Policy makers raised their assessment of the employment outlook, predicting the jobless rate will fall as low as 6.3% by the end of next year, compared with a September forecast of 6.4% to 6.8%.
Gold rose 70% from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system by purchasing debt, increasing concern that inflation would accelerate.
Accelerating economic growth may eventually bring higher consumer prices and revive demand for gold as a hedge against inflation, said Tom Winmill, who helps manage about $250 million of assets in Walpole, New Hampshire, for Midas Funds.
Policy makers may hold interest rates near zero percent even if unemployment falls below the 6.5% rate the central bank previously cited as a likely catalyst for an increase, “especially if projected inflation continues to run below” the 2% goal, the Fed said in its statement.
“We expect that as the economy recovers, which is the reason they’re tapering, inflation will come back,” Winmill said. “The long-term outlook is exceedingly bullish for gold.”
Prices fell after some investors lost faith in precious metals as a store of value. Bullion held in exchange-traded products plunged 32% in 2013, heading for the first decrease since the funds started trading in 2003. The slump wiped $72.7 billion from the value of the assets.
Global equities have advanced to the highest in almost six years, and U.S. inflation is running at 1.2%, almost half the rate of the past decade. U.S. gross domestic product climbed at a 4.1% annualized rate in the third quarter, the strongest since the final three months of 2011, Commerce Department data showed Dec. 20.
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.