(Kitco News) – It appears the bearish page is turning for the gold market, and with prices testing critical resistance just below $1,750, investors no longer fear rising bond yields.
Gold prices are looking to end the week with 1% gains even as bond yields hold near a 13-month high above 1.7%. This is an impressive accomplishment as many investors note that the bond market selloff has been the biggest hurdle for the precious metal.
Sentiment shifted on Wednesday, with gold hitting a nearly two-week high after the U.S. central bank left its extremely loose-monetary policies unchanged. The central bank committee also signaled that it isn’t looking to raise interest rates until at least 2024.
Federal Reserve Chair Jerome Powell signaled the same patient stance during his press conference, noting several times that they won’t move until the economy has fully recovered. Of course, the most interesting part of his press conference was what he didn’t talk about, specifically his thoughts on the sharp rise in 10-year bond yields.
He generally dismissed any concerns saying that financial conditions are highly accommodative.
“I would be concerned by disorderly conditions in markets or by a persistent tightening of financial conditions that threaten the achievement of our goals,” he said. “We think the stance of monetary policy remains appropriate,” he said.
Although his stance on bond yields means that the market can go higher, many analysts are starting to question that stance as the Fed is nowhere near ready to raise interest rates.
Many analysts are starting to think that bond yields won’t be able to sustain a move above 2%. Either the bond market will see some natural short covering, or the Fed will come in and cap yields.
“If yields go up any further than that, consumers are going to be in trouble,” she said. “I think if we see a further move to 2%, then central banks will start trying to jawbone the markets.”
Another reason why the gold market doesn’t have to fear the rise in nominal bond yields is that it is a natural reaction to improving economic conditions. The rollout of COVID-19 vaccines and the government’s recent stimulus measures is expected to provide the spark to ignite a significant and robust economy. The Federal Reserve expects the U.S. economy to expand 6.5% this year, so it makes sense that bond yields move a little higher.
While the bullish sentiment is improving, not everyone sees gold pushing higher in the near-term. Joe Foster, portfolio manager for the VanEck Gold Strategy said that robust economic growth could push gold prices to $1,600 an ounce before it can rally to $3,000.
So that is it for this week. Have a great weekend.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
Read More: Don’t fear rising bond yields