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Gold prices take a hit as Yellen colors outside the lines, talks rate hikes

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(Kitco News) - The gold market is trying to crawl up from session lows as it was dragged down by hawkish comments from Secretary Treasurer Janet Yellen.

Speaking in a webinar hosted by The Atlantic, Yellen warned that interest rates might have to rise to stop the U.S. economy from overheating.

"It may be that interest rates will have to rise somewhat to make sure that our economy doesn't overheat, even though the additional spending is relatively small relative to the size of the economy,” she said in the presentation, catching gold and silver prices by surprise.

Gold prices last traded at $1,775.1 an ounce, down nearly 1% on the day. Meanwhile silver prices are giving back more gains after Monday’s breakout rally. July silver last traded at $26.31 an ounce, down more than 2% on the day. 

But it was not just markets that were taken by surprise as some analysts noted that Yellen’s comments on interest rates are inappropriate.

“Yellen is no longer Fed chair and Powell won't like this line of talk. It's puzzling that she would go down this road,” said Adam Button, chief currency strategist at Forexlive.com. “She seems to be talking about market-driven rates but it's a bizarre comment from someone who should definitely know to stay in her lane.”

Axel Merk, president and chief investment officer at Merk Investments also noted that it was inappropriate for Yellen to talk about monetary policy.

Yellen also talked up President Joe Biden’s spending proposals, saying that he is addressing long-standing problems in the economy.

Yellen’s comments on interest rates come only 48 hours after she downplayed rising inflation pressure In an interview with NBC's "Meet the Press,” she said that she expects rising inflation pressures to be transitory.

Even though rising inflation pressures could mean that the Federal Reserve may have to raise interest rates sooner than expected, many market analysts see this as a low probability.

Many analysts don’t think the economy can accord higher interest rates with the government looking to spend trillions of dollars on infrastructure, blowing out the already ballooning deficit. 

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