Gold Bulls Cheer as Inflation Flop Foils Fed Tightening Zeal

20-Aug (Bloomberg) — The Federal Reserve’s quest for U.S. inflation is proving frustrating, and that’s good news for gold bulls.

A Labor Department report Wednesday showed the cost of living rose in July at the slowest pace in three months, and a measure of prices excluding food, energy and shelter fell for the first time this year. Minutes of the Fed’s last meeting released later in the day showed officials want more confidence that inflation is moving toward their goal.

Gold, historically sought as a store of value as consumer prices rise, is instead benefiting from doubts on how soon inflation will return to the Fed’s 2 percent target. Those doubts are fueling speculation that policy makers will delay raising rates, which would curb the appeal of the metal because it doesn’t pay interest. Bullion has rallied more than 7 percent from a five-year low in July amid currency devaluations and concerns over the global economy.

“The Fed wants to tighten, but they know it’s an environment where they cannot tighten,” Mike McGlone, the New York-based director of research at ETF Securities LLC, said in a telephone interview. “There are signs of deflation everywhere.”

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PG View: What the article doesn’t mention is that gold has historically proven to be an excellent deflationary hedge. See Gold as a deflation hedge