(Kitco News) – Once again, we end the week with gold prices treading water, stuck in a narrow range between $1,700 and $1,750 an ounce.
The gold price doesn’t look like it will be going anywhere anytime soon, but there is some hope as there is still a lot of optimism in the marketplace.
The topical question of the day remains just how much further can bonds selloff? How high can yields go in the current environment where the Federal Reserve is not expected to raise interest rates for the foreseeable future?
Unfortunately for gold, there is a growing consensus that bond yields have room to move up as they hover around a 13-month high. Some firms now see the yield on 10-year notes rising to 2.5% by the end of the year.
This week I had a chance to talk to Kristina Hooper, chief investment strategist at Invesco. She said that in the current environment where the U.S. expects to see a robust recovery, it makes sense that bond yields should be higher.
“So far, nothing we have seen has been disorderly,” she said. “Rising rates is what we should expect in an improving economic environment.”
On the positive side, Hooper added that gold would remain an important diversification tool for investors even with higher interest rates.
“For the gold market, the fundamentals still matter. And I don’t think there’s anything fundamental in what has been happening with the 10-year treasury rate at this point,” he said. “The 10-year treasury rates have got a bit ahead of itself in terms of what people believe it is predicting about the strength of the U.S. economy. I’m saying let’s be a little more cautious.”
But it’s not just rising bond yields that gold has to worry about. The precious metal continues to face tough competition with cryptocurrencies.
CNBC’s Mad Money host Jim Cramer has been a big gold bull for a long time, but this week he surprised markets when he announced that he was starting to hedge his precious metals bets with bitcoin.
Instead of holding 10% of your portfolio in gold, Cramer now recommends investors hold 5% in precious metals and 1% in bitcoin.
“I have, for years, said that you should have gold … but gold let me down,” Cramer said during his appearance on the Pomp Podcast. “Gold is subject to too many vicissitudes. It’s subject to mining issues. It’s frankly subject to failing in many cases.”
Cramer added that he had made “a ton of money” after investing $500,000 in bitcoin.
Even the Federal Reserve Chair Jerome Powell doesn’t see much difference between bitcoin and gold. Speaking in a panel discussion at the Bank for International Settlements (BIS) Innovation Summit, Powell dismissed bitcoin’s role as a global currency, saying that it is too volatile for consumers.
“Crypto assets are highly volatile and therefore not useful as a store of value,” he said. “It is a speculative asset that is essentially a substitute for gold rather than for the dollar.”
That is it for this week. Because of the Easter holiday, we won’t be publishing a newsletter next Friday.
Have a great weekend and happy Easter!