No more golden bears waking up from hibernation

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(Kitco News) – Spring must be around the corner as golden bears are emerging from their hibernation. It was another tough week for the precious metal as the price was unable to maintain the line at $ 1,750 per ounce.

The lackluster price action is impacting sentiment in the market as more banks begin to lower their bullish guidance for the year. Commerzbank Precious Metals Analysts began the week by saying they saw the price of gold push to just $ 2,000 an ounce this year, down from their original target of $ 2,300. the ounce.

Goldman Sachs followed suit on Thursday, also lowering their gold forecast to $ 2,000 from their previous 12-month target of $ 2,300.

For both banks, the biggest hurdle for gold remains the massive sell-off of bonds, which is pushing bond yields up. The yield on 10-year notes continues to soar, topping 1.6%, hitting a new one-year high. While yields are still relatively low, they are significantly higher compared to 0.5% just six months ago.

The question in the market is how far can the Federal Reserve allow bond yields to rise? Unfortunately, investors did not get real answers from Federal Reserve Chairman Jerome Powell, who spent two days testifying before Congress. Powell was pretty elusive when it came to providing specific answers to politicians.

Speaking of bond yields, Powell simply noted that the market was forecasting a more robust and comprehensive economic recovery due to the government and central bank stimulus measures supporting the economy. Instead of talking about any specific action, he reiterated that the central bank would maintain its ultra-accommodative monetary policies “for a while”.

Not only was Powell little concerned about rising bond yields, but he was also fairly happy with inflation. While everyone is focused on resuming economic activity in the United States, they ignore the growing threat of inflation.

However, more and more investors are voicing their own concerns. Michael Burry – the investor who was featured in Michael Lewis’ book “The Big Short” on the mortgage crisis and who now runs Scion Asset Management, posted an inflation warning on Twitter.

“The US government is urging inflation with its MMT-tinted policies. Debt / GDP sustained, M2 increases as retail sales rise, Phase V PMI resumes. Trillion additional stimulus and reopening to boost demand as employee and supply chain costs are skyrocketing, “Burry tweeted on Saturday, ahead of Powell’s testimony.

But that’s not all bad news for the gold market. Although the yellow metal has struggled to find further bullish momentum, some analysts note that recent price action is a sign of resilient strength. Bond yields are at a year-ago high, but gold is managing to keep support at its June lows.

“The reason we don’t see a gold rush is that some people think bond selling may be overkill, or maybe inflation will be more than expected,” said Axel Merk, chairman and chief investment officer of Merk Investments.

As for how bond yields can go, Merk said he thinks the sell-off is a bit of a stretch, but market momentum could push yields to 2%.

Gold investors can therefore expect to see turbulent waters in the near term; however, I would like to point out one last thing. Even as banks start to lower their high gold price targets, they remain bullish on the precious metal for the long term.

The reality is that central banks and governments around the world continue to inject massive liquidity into financial markets. We have no idea what impact this will have on inflationary pressures in the long run.