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Gold is feeling the heat as Powell ignores bond market selloff

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(Kitco News) - Just when it looked like gold was finding a bottom around $1,700, Federal Reserve Chair Jerome Powell decided to throw the market a shovel and told investors to start digging.

Gold prices fell solidly below $1,700 an ounce late Thursday after Powell, speaking at the Wall Street Journal Jobs Summit, said that he wasn't too concerned with the selloff in the bond market. He said that it would take more than just a rise in bond yields for the central bank to adjust its monetary policy. While the rise in bond yields attracted his attention, he said that monetary policy is not based on one number.

"I would be concerned with disorder in the financial market or unwanted tightening. It's not about one particular price," he said.

Powell's comments pushed bond yields to a one-year high above 1.6%. Heading into the weekend, yields on 10-year notes are still at elevated levels above 1.5%.

The question a lot of investors and market players have been asking is at what point does the Federal Reserve jump in a cap bond yields, which have risen more than 200% from its lows in August. The answer the market keeps getting from Powell is "not any time soon."

To make a long story short, storm clouds will continue to brew over the gold market as bond yields can continue to rise unchecked. According to some analysts, if gold can't gold support at $1,680, we could see significantly lower prices with potentially $1,600 as a looming target.

"Wherever the top in yields is, it will be the bottom for gold," said Phillip Streible, chief market strategist at Blue Line Futures, in a comment to Kitco News, Friday.

While there is clearly negative sentiment in the marketplace in the near-term, many investors are not ready to give up on gold in the long-term. Although most people are focused on the growing potential for a strong economic recovery, the inflation threat continues to grow.

Gold's price action has been lackluster lately. However, the broader commodity market is on fire, with everything from grains to lumber to base metals seeing unprecedented rallies. For many analysts, these higher prices could unleash a tidal wave of inflation that could drive gold prices higher.

"Historically, gold has tended to underperform a commodity-led reflationary period in the first six months but has generally outperformed in the subsequent six to 36 months," said analysts at the World Gold Council in a report published earlier this week.

With so much going on in financial markets, the ongoing debate between gold and cryptocurrencies feels like a sideshow that completely ignores the bigger event.

This week billionaire investor Mark Cuban jumped into the debate and battled it out with bitcoin critic Peter Schiff on Twitter. Cuban declared, "Gold is dead Peter. Move on."

However, Schiff shot back, saying that bitcoin was "a waste of energy."

I personally think this debate is a waste of time because ultimately the two assets are doing the exact same thing. Bitcoin and gold are hedges used to protect investors from global currency debasement in an environment of rising inflation.

With that, I am going to let famed investor Frank Giustra have the final say in this dispute.

"Both @mcuban & @PeterSchiff are misguided. Bitcoin is here to stay, for a while anyway. Gold is far from dead. Stop fighting each other. All #BTC fans, gold is the least of your worries. Your real battle will be with governments, CB's," he said on Twitter.

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.