Gold market holding above $1,900 as bond yields surge after Powell’s 50-basis point hike signal

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(Kitco News) – The gold market is seeing consistent selling pressure as markets react to Federal Reserve Chair Jerome Powell’s hawkish comments signaling a potential 50-basis point move in May.

“We will take the necessary steps to ensure a return to price stability. In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meeting, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well,” Powell said Tuesday, in his keynote address at the National Association for Business Economics Annual Economic Policy Conference.

Powell’s comments pushed 10-year yields to nearly 2.40%, its highest level in almost three years. However, commodity analysts note that despite a stronger U.S. dollar and surging bond yields, gold prices are holding above critical support levels.

Analysts have noted that gold remains firmly entrenched between $1,900 and $1,950 an ounce. April gold futures last traded at $1,920.30 an ounce, down 0.48% on the day.

Daniel Briesemann, commodity analyst at Commerzbank, said that there are now growing risks that the U.S. central bank’s aggressive action could push the U.S. economy into a recession, which would be positive for gold.

“These concerns may have helped the gold price yesterday. Yesterday also saw the eighth ETF daily inflow in a row, at just under 12 tons,” he said.

Ole Hansen, head of commodity strategy at Saxo Bank, also noted rising recession risks are rising. He added that investors need to pay close attention to oil prices.

“Crude oil is currently the single most important market to watch with rising prices signaling rising geopolitical risks and inflation as well as slowing economic growth, all gold supporting drivers,” he said.

Commodity analysts at Heraeus Precious metals said that gold could be volatile in the near term as the Federal Reserve embarks on its tightening cycle. However, they added that investors should keep an eye on the bigger picture.

“As real interest rates creep up, appetite for gold as an inflation hedge could diminish. However, even if the Fed’s upper estimates of rate raises become reality, inflation will still be ahead, and real interest rates negative, maintaining a positive environment for gold in the medium term,” the analysts said.

Kristina Hooper, chief investment strategist at Invesco, said that while she expects the U.S. central bank to engineer a soft landing, risks are rising. She added that it is most likely the Federal Reserve is just “talking tough.”

“It’s easy to release an aggressive dot plot, and it’s easy to talk tough in press conferences and speeches. But it’s a lot harder to actually raise rates seven times in the course of one year and four times in the following year and increase the risk of choking off the economic cycle,” she said.

In a recent interview with Kitco News, Hooper said that it makes sense for investors to hold some gold and commodities as important diversification tools in the current environment.

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.