Gold drops following Fed’s warning on inflation expectations

Gold prices fell, with gold for immediate delivery dropping 0.6 percent to $1,190.34 an ounce at 2:32 p.m. in New York. The drop followed news from Federal Reserve officials about possible decline in the public’s expectations for inflation.

Goldman Sachs is saying that it expects inflation will remain flat at just 1.5% a year until the end of 2015. Bank of America Merrill Lynch, which had predicted inflation at 1.6% for 2015, has now lowered its forecast to 1.4%.

In addition the Fed said that the effects of a slowdown in global economic growth are “likely to be quite limited” in the US.

According to the WSJ, Merrill’s November survey showed that 59% of bond investors believed the Fed would start increasing rates in the second half of 2015, up from 49% in September.

Low inflation will give the Fed more time before it has to act, it also helps stocks by holding down market interest rates.

 

Inflation does not appear to be a major concern and the limited effect of a global slowdown is not putting making much of a dent in US markets.

Officials said “the committee should remain attentive to evidence of a possible downward shift in longer-term inflation expectations,”

All of this is taking quite a toll on gold

After a rally in the first half of the year, spot gold dropped by 9 percent in the last quarter as the US economy posted economic growth.

Before the release of the Fed minutes gold futures for December delivery declined by 0.3 percent to around $1,193.90 per ounce on the Comex in New York. After the Fed minutes was released prices declined in extended hours.

Gold is currently in the midst of its second annual loss.

As interest rates rise the demand for the metal drops. Gold is often bought to offset an increase in prices.

It is a myth that gold is a safe haven in times of crisis. A growing number of experts are saying publicly that any investment in gold is a speculative one.