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The idea of rising inflationary pressures has taken a large chunk of market attention in recent months. At first glance, the threat of inflation seemingly makes sense. Rising bond yields, higher crude oil prices and other factors have fed the notion that a period of rapid inflation could be on the way.

The idea of entering an inflationary environment comes at a time when the Federal Reserve is looking at adding additional stimulus measures to battle the ongoing COVID-19 pandemic. The idea of further government spending to help Americans hurting from the pandemic has some analysts concerned that too much free money floating around is likely to add fuel to the inflationary fire and boost prices.

Not only have rising price pressures, such as that seen in crude oil, pressured inflationary worries to the upside, but the rapid rise in key treasury product yields has also served to give investors cause for concern. The benchmark 10-year note yield, for example, has quickly risen from sub-1% levels to its current level around 1.5%. This move higher did not happen overnight, however it did seem to take place quickly and would seemingly suggest that higher prices could be on the way.

Fed Chairman Jerome Powell threw some needed water on the fire today as he spoke at the Wall Street Journal Jobs Summit. Powell suggested that while prices have been on the rise, that rise is transitory and is likely a one-time event. The central bank’s long-term inflation objective remains at 2%, and currently inflation is running well below that level. The Fed has also reiterated several times that it plans on allowing inflation to run a bit hot before it even considers removing accommodation.

Powell’s commentary today could be viewed in one of two lights for gold. Some may view the idea of a lack of inflation as allowing the Fed to keep rates ultra-low for longer. Others may view it as being bearish for gold as it suggests that the Fed has still been unable to make any significant economic changes.

The gold bears seemed to have the upper hand today, as gold declined below the key $1700 level following his comments. The drop below this area could potentially set the stage for a larger decline as it may draw bulls out of the market, causing them to effectively throw in the towel. Today’s declines in gold come shortly after the “taper tantrum” of late February fueled selling in bullion that took prices down over $114 per ounce for the month.

The reality, however, is that the Fed can only do one of two things going forward: It can begin to taper (which could drive yields up substantially in a short period of time) or it can stay the course. Given the risks associated with a rapid, large rise in rates, the Fed will almost certainly do nothing for some time. This should allow the bullish gold narrative to remain intact despite some bumps and bruises.