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Gold price likes a patient Federal Reserve, just not the relaxed outlook on bond yields

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(Kitco News) - The gold market doesn't have to fear the Federal Reserve as the central bank Wednesday signaled that it would be in no hurry to raise interest rates before 2024.

However, according to analysts, Federal Reserve Chair Jerome Powell's relaxed outlook of the current bond market selloff remains a significant headwind for the precious metal.

After the U.S. central bank maintained its accommodative monetary policy on Wednesday, Powell was asked about the sharp rise in 10-year bond yields. He generally dismissed any concerns saying that financial conditions are highly accommodative.

"I would be concerned by disorderly conditions in markets or by a persistent tightening of financial conditions that threaten the achievement of our goals," he said. "We think the stance of monetary policy remains appropriate. We are committed to maintaining that patient accommodative stance until the job is well and truly done."

Some analysts have noted that Powell's comments mean that bond yields have room to move higher in the near-term. Thursday, the yield on 10-year notes rose to a new 13-month high above 1.7%.

Analysts added that rising bond yields could eventually drag gold prices below $1,700 an ounce. April gold futures last traded at $1,726 an ounce, relatively unchanged on the day.

In a report Thursday, commodity analysts at Credit Suisse said that they see the potential for gold to retest last week's 10-month low.

"Gold maintains a top below $1,765.61, and with real yields and the USD expected to strengthen further, we view the current bounce as temporary, and we look for a fresh fall to $1,670 next, then $1,620/15," the analysts said.

Georgette Boele, senior precious metals strategist at ABM AMRO, said in a note Wednesday that she also expects goldgold prices to remain under pressure as higher bond yields make the precious metal an unattractive investment.

"Fed seems relatively relaxed about the sharp run-up in 10y U.S. Treasury yields," she said in the note.

She added that rising bond yields also support the U.S. dollar, which will be another weight to drag down gold prices.

"Lower gold prices are in line with our view, but the move has been larger than we had projected in our forecasts. We expect more weakness ahead, but this will unlikely be in one straight line," she said. "The trend remains negative as long as gold prices are below the 200-day moving average, which now comes in around $1.860 per ounce."

While nominal bond yields continue to rise, Ole Hansen, head of commodity strategy at Saxo Bank, said in a webinar Thursday that investors need to keep their eyes on real yields. He added that with the Federal Reserve doing what it can to drive inflation higher, real yields should remain low.

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.