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Gold price is 'back on the field' after 'being benched,' signs point to more gains – analysts

Kitco News

(Kitco News) Gold is back on investors' radar as prices look to end the week on a strong technical note despite another spike in bond yields.

After trading near three-week highs following the Federal Reserve's dovish statement, gold managed to ignore the 10-year U.S. Treasury yield rising to its 14-month high of 1.75% on Friday. At the time of writing, April Comex gold futures were trading at $1,742.60, up more than 1% on the week.

The Fed revised up its 2021 GDP and inflation expectations to 6.5% and 2.4%, respectively, but stressed that rates would remain near zero through 2023. Fed Chair Jerome Powell continued to refer to any price spikes as transitory while ignoring rising yields.

On Friday, the Fed threw another curveball at the markets, as it declined to extend a temporary bank leverage rule exemption that expires at the end of the month. The rule excluded U.S. Treasuries and central bank deposits from the "supplementary leverage ratio," which helped to encourage bank lending during the pandemic. In response, yields continued to rise, and the stock market sold off.

In light of this, gold had a decent performance, holding above $1,730 an ounce, while equities and oil were down. Blue Line Futures chief market strategist Phillip Streible told Kitco News.

"Gold as an asset class has moved up on the investors' lists. The precious metal was irrelevant for many a few weeks ago; there was more action in other markets. But now, it moved itself back up. Gold is a player on the field again after being benched for a while," Streible said.

Some investors are starting to look at gold amid this market volatility, he added.

Gold has been trading well relative to other commodities as well, including silver and copper, said LaSalle Futures Group senior market strategist Charlie Nedoss.

"The 10-day moving average is starting to rise, and I anticipate a close above the 20-day for the first time since January 7," Nedoss said, adding that these are great signs for gold.

Also, geopolitics is back on the radar when it comes to trading gold, analysts pointed out. Top U.S. and China officials clashed during the first high-level meeting with Joe Biden's administration.

"We will ... discuss our deep concerns with actions by China, including in Xinjiang, Hong Kong, Taiwan, cyber attacks on the United States, economic coercion of our allies," said U.S. Secretary of State Antony Blinken during the meeting, which took place in Anchorage, Alaska.

In response, China's top diplomat Yang Jiechi said: "The United States uses its military force and financial hegemony to carry out long-arm jurisdiction and suppress other countries. It abuses so-called notions of national security to obstruct normal trade exchanges, and incite some countries to attack China."

These tensions come just a day after Joe Biden said that Russian President Vladimir Putin was a killer during an ABC News interview.

Following the comments, Putin said he had last spoken to Biden via a telephone at the request of the U.S. president. More talks are said to follow. "I want to offer President Biden that we continue our discussion, but on the condition that we do it live, online, without any delays," Putin said.

With the COVID-19 pandemic disruptions taking precedent, geopolitical tensions have been low, but if that is about to change, the gold price could react positively, analysts told Kitco News.

"With the trade deal concerns, the U.S.-China talks didn't start off so well," said Nedoss.

The geopolitical uncertainty has some stepping into gold, said Streible. "Geopolitics are front and center now, as well as yields and market volatility. If volatility comes down, yields will probably keep going higher. If there is another flare-up in the geopolitical sense, there might be some safety buying," he said.

Price levels to watch

Gold is still at risk to go in either direction, added Streible. "It can go down through $1,700 pretty easily if yields keep rising. But a push through $1,750 might reignite the bull camp."

The fact that gold did not washout at $1,700 this week is very good, said Nedoss. "On the downside, I don't want to see a close above yesterday's lows below $1,720. If we can close above $1,750 an ounce, it would be big for gold," he noted.

Fed speak, Powell-Yellen duo

Next week, there will also be a slate of Federal Reserve speakers, including a joint appearance to the Senate Banking Committee from Fed Chair Jerome Powell and Treasury Secretary Janet Yellen on Wednesday.

"Given the move higher in longer-dated bond yields, it will be interesting to see whether that is making them nervous. Almost certainly, we will hear a narrative that inflation risks are overblown, but in an environment of a supply-constrained economy that is experiencing massive stimulus-induced demand, we certainly think inflation will be higher and more sustained than the Fed has publicly stated," said ING economists on Friday.

Next week's data

All eyes will be on the U.S. Q4 GDP data on Thursday and the PCE price index on Friday.

"The personal income and spending figures will see a reversal after the boost from the $600 stimulus cheques in the January data. This weakness won't last long given the latest $1400 stimulus payment has been hitting bank accounts over the past week with March's figures set to be even stronger than January for both income and spending," ING economists added.

Also on the radar will be U.S. existing home sales on Monday and new home sales on Tuesday. Durable goods orders will be out on Wednesday, along with manufacturing PMI.

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