Gold and silver bounced to monthly highs on a weaker dollar and a dovish Fed

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Vrasidas Neofytou
Head of Investment Research

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Gold and silver bounced to monthly highs on a weaker dollar and a dovish Fed

Gold prices hit a fresh monthly high of $1,880/oz this morning, while Silver also rebounded to over $22/oz level, after getting support from the recent U.S. dollar weakness and the retreat of the Treasury yields from their 16-year highs after more dovish remarks from Federal Reserve officials.

Gold, Daily chart

Comments from more Fed officials suggesting U.S. rates may have peaked have added pressure on both U.S. dollar and U.S. Treasury yields, which fell to near two-week lows on Thursday morning, lifting dollar & yield-sensitive precious metals on levels that haven’t been seen since the end of September.

The DXY-U.S. dollar index, which tracks the value of the dollar against six major peers (Euro is the 60% of the index) dropped to nearly 105.50, down almost 2% after topping 107 in early October, making dollar-denominated gold and silver more attractive (less expensive) for buyers with foreign currency.

Like the dollar, both 2-year and 10-year Treasury yields have retreated from their 16-year highs following some dovish comments from Fed officials, boosting bullion (gold and silver) prices as lower interest rates decline the opportunity cost of holding non-yielding bullion.

Despite the recent bounce off six-month lows of $1,810/oz, Gold is still down nearly 10% from near record highs of $2,067/oz hit early May 2023, due to a stronger dollar and surging Treasury yields.

All eyes would be on the well-expected U.S. CPI inflation data for September due later that could throw some light on the Federal Reserve's cautious tilt on interest rates.

Stakes are higher because the U.S. PPI-producer price inflation report came in hotter than expected on Wednesday, while WTI crude oil price hit a yearly high of $97/b last month, adding further energy and food inflationary pressure to the economy.

Market participants expect the headline CPI-consumer price index to have risen 0.3% in September on a monthly basis, slowing from 0.6% in August, and 3.6% y-y vs 3.7% in August, while core CPI is seen steady at 0.3%.

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