Gold and Silver hit multi-month highs on hopes for a less hawkish Federal Reserve

The precious metals have extended last year’s rally into 2023, driven by the ongoing weakness in the U.S. dollar, and the falling bond yields on hopes for a less hawkish Federal Reserve in the next months, coupled with safe-haven demand amid fears of a potential economic recession in 2023.

The price of Gold touched the $1,880/oz key level this morning, its highest since early May 2022, while Silver traded above the $24/oz key resistance level, its highest since late April 2022.

Spot Gold, Daily chart

Gold prices jumped from $1,830/oz to near $1,870/oz, or up 2% last Friday, boosted by softer U.S. jobs data (U.S. NFP-nonfarm payrolls grew at their slowest pace in a year in December), which pushed up the expectations for a lower U.S. inflation reading this week and an eventual change in the Federal Reserve’s hawkish rhetoric.

The softer NFP reading calmed concerns of the market participants an overheated U.S. employment market will prevent inflation from easing further this year and pushed up expectations that the Federal Reserve will soften its hawkish stance sooner than expected, letting up pressure on gold and other non-yielding assets.

On top of that, the dollar softened further on Monday morning as forex traders turned bearish on the greenback, with the DXY-U.S. dollar index hitting a fresh six-month low of 103.50 this morning while the yields on the 10-year U.S. bond fell to near 3,60%, on hopes of less-aggressive U.S. rate hikes by the Federal Reserve, making the dollar-denominated gold and silver further cheaper for overseas buyers.

The bullish outlook for precious metals is supported by the expectation that the Fed is ready to further slow its pace of interest rate hikes, with most of the traders pricing in only a 25-basis point hike in February, despite the warnings from the central bankers for higher rates for longer to bring back the inflation to Fed’s target of 2%.