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Unchecked rise in bond yields will weigh on gold as prices end the week below $1,700

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(Kitco News) - Renewed momentum in the U.S. dollar, rising bond yields, and growing investor optimism surrounding U.S. economic growth are taking their toll on the gold market as sentiment remains firmly bearish, according to the latest results of the Kitco News Weekly Gold Survey.

For many gold investors, the dominant question remains just how high bond yields can go. For many, this is the most significant headwind for the precious metal.

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

This week, a total of 13 market professionals took part in Kitco News' Wall Street survey. Four analysts, or 29%, said they were bullish on gold next week. Eight analysts, or 57%, said they were bearish. Two analysts, or 14%, said they were neutral on the precious metal.

On the retail side, 1,482 respondents took part in online polls. A total of 595 voters, or 40%, called for gold to rise. Another 657, or 44%, predicted gold would fall. While the remaining 230 voters, or 16%, called for a sideways market.

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The rise in bearish sentiment comes as gold prices fell to critical support levels Friday. Gold prices tested support around $1,680 an ounce after the U.S. government said that 379,000 jobs were created in February.

Last month's nonfarm payroll data were significantly more robust than expected as economists were looking for job growth of around 197,000.

Although gold prices have bounced off the Friday lows, the market is still preparing to end the week in negative territory. April gold futures last traded at $1696.60 an ounce, down nearly 2% from last Friday.

Along with improving economic conditions, some market analysts say that bond yields have room to move higher after Federal Reserve Chair Jerome Powell dismissed the recent spike during a presentation at the Wall Street Journal Jobs Summit on Thursday.

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 increase 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.

Darrin Newsome, president of Darin Newsom Analysis, said that Powell's comments mean that bond yields can continue to rise unchecked, and that will keep the pressure on gold.

Ole Hansen, head of commodity strategy at Saxo Bank, said that he is bullish on gold in the near-term as he expects gold prices to hold support at their recent 11-month low. However, he also noted that gold's struggle is not over.

"Gold is unlikely to catch a break until yields and the dollar stabilize. Something that the Fed is currently not prepared to back, and which may result in more pain until financial conditions reach levels that force the Fed's hand to respond," he said.

Adrian Day, president of Adrian Day Asset Management, said that he is bullish on gold as the selloff appears overdone.

"We may have seen a sufficient drop to cleanse the market of weak holders," he said. "At least gold is due for a recovery."

Afshin Nabavi, head of trading with MKS (Switzerland) SA, said that he is neutral on gold even as the long-term fundamentals continue to support prices. He added that a stronger U.S. dollar and higher bond yields continue to dominate gold prices.

"Until the U.S. dollar and bond yields top out, it will be very difficult for gold. Right now, I am just sitting back and waiting for the right time to jump back in," he said.

Colin Cieszynski, chief market strategist at SIA Wealth Management, said that gold would continue to struggle until inflation rises to a level that can't be ignored. He added that aside from gold, commodities across the board are rallying, and it could be only a matter of time before inflation creeps into consumer markets. 

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.