Gold feels the pain as Powell closes the door on the doves

Get all the essential market news and expert opinions in one place with our daily newsletter. Receive a comprehensive recap of the day’s top stories directly to your inbox. Sign up here!

(Kitco News) – If the Federal Reserve treats inflation like they do protestors, the gold market could be in trouble.

Social media lost its mind Thursday after Federal Reserve Jerome Powell was interrupted by a climate-change activist. The protestor was admonishing the U.S. central bank and the government for not doing enough to protect the environment.

As organizers of the roundtable discussion, hosted by the International Monetary Fund, tried to get the protestor under control, Powel was heard on a live microphone saying very sternly: “Just close the f**king door.”

The hot mic moment definitely took some focus away from Powell’s primary message, but not entirely. Powell warned markets that although inflation has come down from last year’s 40-year highs, the Fed still has work to do. He said that the central bank is not “confident” that it has inflation under control enough to shift its current tightening bias.

He also said that the Federal Reserve wouldn’t hesitate to raise interest rates if inflation pressures start to rise again. To keep this pun alive a little bit longer, Powell slammed the door on any potential dovish sentiment building in the marketplace.

Gold investors did not like Powell’s latest message to financial markets as prices have dropped below support at $1,950 an ounce and are looking to end the week down nearly 3% from last Friday.

But there is another side to this hot mic story that could be bullish for gold. One of the reasons this has taken off is because it goes entirely against the professional image that Powell projects to the media.

Some analysts have told Kitco News that this tiny loss of control could indicate that Powell’s confidence in the U.S. economy is not as rock-solid as he would have investors believe. The stress from growing economic uncertainty could be weighing on the Fed, causing tempers to flair.

We already know that the Fed walks a very fine line as it tries to avoid pushing the economy into a recession while it slows growth to cool down inflation. There is still a lot of doubt that the central bank will be able to get inflation back to 2% before something significant breaks.

This uncertainty would make anyone want to yell at a protestor.

At the same time, the debate is more than just whether or not the U.S. and the world fall into a recession. The big question is, what kind of response can the central bank and the government muster to combat a downturn?

The U.S. government debt and growing deficit continue to be a growing concern among many investors. The days of just throwing money at a problem are quickly disappearing as the government faces higher borrowing costs.

We can already see signs of investor fatigue for U.S. government debt. Just before Powell’s hot mic incident, the U.S. Treasury Department auctioned off $24 billion in 30-year notes. At best, the auction was described as bad.

In one example of the disappointing auction, primary dealers, who buy up supply not taken by investors, had to accept 24.7% of the debt on offer, more than double the 12% average for the past year.

The U.S. government is on the cusp of entering a major debt spiral as interest rates remain elevated. Last month, it was revealed that servicing costs for its more than $33 trillion debt are now more than the annual defense budget.

So, while sentiment in the gold market is starting to sour, investors should remember that there are genuine reasons to look for long-term buying opportunities.

That is it for the week. Have a great weekend