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Powell closes the door to negative rates but gold opens a window

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(Kitco News) - It has been another interesting week for the gold market as it is heading into the weekend at the highest price levels in nearly a month. June gold futures last traded at $1,755.60 an ounce.

Not only does the rally come after a lackluster start to the week, but it also comes after Federal Reserve Chair Jerome Powell definitively closed the door on lowering interest rates to negative territory.

"Negative rates are something we are not considering. We have a good tool kit," Powell said in Wednesday's webinar hosted by the Peterson Institute for International Economics. "The tools we are using: forward guidance and asset purchases work and that is what we will be using."

According to some analysts, what is helping gold is the fact that despite Powell's comments, markets are still pricing in negative interest rates. However, Jasper Lawler, head of research at the London Capital Group, said that these expectations are the market's way of pricing further significant action from the Federal Reserve.

Lawler said that instead of negative interest rates, the Fed's next tool in its rapidly emptying toolbox is currency manipulation. This would be a game-changer for gold because a strong U.S. dollar has been a significant obstacle in the precious metal's bull run.

Colin Hamilton, commodities analyst at BMO Capital Markets, noted that with the Federal Reserve expected to continue to pump liquidity into financial markets, gold doesn't actually need to see negative interest rates to move higher.

Although gold has been consolidating in a narrowing trading range, Powell's comments haven't been enough to dampen the optimism in the precious metals space. Earlier this week, RBC increased its forecast for gold, seeing prices push above $1,900 an ounce by the end of the year.

However, so far, the most bullish sentiment might be from Florian Grummes, managing director of Midas Touch Consulting. In an interview with Kitco's David Lin, he said that gold could shoot to $9,000 in the next five to 10 years.

"If you look at it from a very long-term perspective, and you can only compare it to the bull market of the 1970s. Once the bull market started again in 1976, it went up for four years and it went up basically from $100 to $890, so nearly nine-fold. If you use the same ratio to today's numbers, we would end up having gold, at some point in the future, $8,000, $9,000 gold, but we're talking five to 10 years, I think," he said.

It's not just the gold market that is seeing renewed optimism. Investors are also starting to pay attention to silver.

Heading into the weekend, the silver market has pushed to a two-month high, with prices trading around $17 an ounce.

In a commentary published this week, analysts at Orchid Research said that they expect silver to outperform gold in the second quarter as investors look for value in the precious metals market and industrial demand picks up with nations starting to ease their two-month lockdown measures.

So that is all for this week.

As always, I hope everyone has a great weekend and you all stay safe and healthy. 

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.