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(Kitco News) - Two weeks ago, I highlighted an underlying strength in the gold market as prices have consolidated between $1,900 and $1,950 an ounce in the face of rising bond yields.

Today, that theme continues to dominate the precious metals market. This week, 10-year yields pushed to a three-year high above 2.6% and yet gold is ending the week with a 1% gain, at the top of its range near $1,950.

It's challenging to convene just how impressive gold's price action has been in this environment. The 10-year yield has broken a trend line that goes back to the mid-1980s. This breakout means we, potentially, are seeing the start of the biggest bear market in bonds in 37 years.

Traditionally, rising bond yields are negative for gold because it raises the opportunity costs of the precious metal, a nonyielding asset. Yields are moving higher as investors prepare for the Federal Reserve to embark on a fairly aggressive tightening cycle.

Ole Hansen, head of commodity strategy at Saxo Bank, had the best description of gold's price action this past week.

“Having survived having the kitchen sink and more thrown at it by several FOMC members this week, I believe gold could move higher given how much has been priced in by now,” he said in a comment for this week's Kitco News Gold Survey.

Just what was thrown at gold this week? Wednesday, the Minutes from the March monetary policy meeting showed that members of the U.S. central bank see the potential for a 50-basis point rate hike at the next two meetings. At the same time, the Federal Reserve will start reducing its balance sheet in May.

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This hawkish stance would have sent gold screaming lower if we were in a typical market environment. But nothing has been typical about 2022. Although markets see the Federal Reserve raising interest rates to 3% this year, they will still be well behind the inflation curve. Some economists expect inflation to rise between 4% and 6% this year, so real interest rates will remain deeply negative.

This is where gold comes in. Volatility is destroying capital in equity markets. At the same time, investors are losing money with their bond investments as yields rise. With few places to turn, investors are embracing gold as an inflation hedge and safe-haven asset.

One report that stood out for us came from Société Générale. The French bank said it is holding a 10% maximum position in commodities in its Multi-Asset-Portfolio. Half of that position is in gold.

You can see strong demand throughout the entire gold market.

The World Gold Council said that more than 187 tonnes of gold flowed into global gold-backed exchange-traded funds last month, its biggest inflows since February 2016.

Looking at the bullion market, the U.S. Mint last month sold 155,500 ounces of various denominations of its American Eagle Gold bullion coins. This was the best March going back to 1999.

It's more than just market instability that is driving gold demand. The uncertain geopolitical landscape is also supporting the precious metal. Russia's invasion of Ukraine is transforming from a humanitarian crisis into an international war crime.

Media worldwide have been reporting that Russian soldiers have been targeting Ukrainian civilians and the coverage has been hard to watch. Even when this conflict is resolved, the world will not be able to go back to the way things were.

We expect gold will be an essential stabilizing asset for the foreseeable future.

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.