Gold caught in the middle as Yellen, Buffett present opposing views on inflation
(Kitco News) - According to some analysts, the gold market is benefiting from shifting sentiment in the bond market after U.S. Treasury Secretary Janet Yellen downplayed inflation fears as the Biden Administration proposes nearly $6 trillion to support American families and rebuild the nation's infrastructure.
In an interview with NBC's "Meet the Press," Yellen said that she expects rising inflation pressures to be transitory. She added that Biden's new spending proposals wouldn't impact inflation pressure because they would be spread over the next ten years.
"I don't believe that inflation will be an issue, but if it becomes an issue, we have tools to address it. These are historic investments that we need to make our economy productive and fair," she said during the interview.
Along with proposing new initiatives, Biden said that some of his programs would be paid for by increasing taxes on corporations and the wealthiest Americans.
Yellen's inflation outlook has helped to keep a cap on bond yields which are down 2% from last week's highs. U.S. 10-year bond yields last traded at 1.6%, down more than 1% on the day.
Renewed pressure on U.S. bond yields is helping gold prices push to a nine-week high and to within striking distance of $1,800 an ounce.
However, not everyone is buying into the story that inflation will be transitory. While Yellen is downplaying the inflation threat, one of the world's most famous investors is throwing some fuel on the fire.
Saturday, at the Berkshire Hathaway annual shareholder meeting, CEO Warren Buffett said that his company is seeing rising price pressures among its various businesses and investment.
"We are seeing very substantial inflation," Buffett said. "It's very interesting. We are raising prices. People are raising prices to us, and it's being accepted."
Buffett specifically noted rising prices in the housing sector.
Raw commodity prices have surged higher this year. Lumber and copper have captured significant investor attention as prices have seen an unprecedented rally to record highs.
Many analysts noted that the rise in commodity prices could lead to stickier inflation than expected.
In a recent interview with Kitco News, Tim Hayes, chief global investment strategist at Ned Davis Research, said that he has turned bullish on gold because of the rising inflation threat.
He explained that with the Federal Reserve looking for concrete confirmation of a solid economic recovery, it would end up behind the inflation curve.
"If inflation doesn't go back down as the Fed expects it will, then you will see significantly higher gold prices," he said.
Hayes added that he expects inflation will be a long-term issue for the next two or three years.
Although gold prices have been unable to break above $1,800 an ounce, analysts are still optimistic that this level will eventually break.
Analysts at Commerzbank said in a report Monday that they expect investor demand in the second half of the year to push price back to $2,000 an ounce.