Funds cut gold bull bets amid record outflows

Fed Taper

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.

‘Exceedingly Bullish’

“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.

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