Gold and Silver hit record peaks on softer inflation and geopolitics

Gold hit a fresh record high of $2,440/oz on Monday morning while the price of Silver rallied to an over 11-year high of $32,30/oz, driven by the falling dollar and bond yields, the optimism over declining U.S. interest rates, and the increasing economic and political risks.

Gold price, Daily chart

The dollar-denominated yellow metal gained over 1% and Silver advanced 1.50% at the beginning of the trading week following the softness of the dollar and bond yields, as the cooling U.S. CPI-inflation ramped up hopes the Federal Reserve will begin cutting interest rates sooner than expected, most probably in September. (Source: www.cmegroup.com)

The overall CPI-consumer price index slowed to a 0.3% pace in April from 0.4% a month earlier, slower than the 0.4% pace economists had expected, boosting hopes that the disinflation trend is back on track. That took the annual figure to 3.4%, down from a 3.5% pace. (Source: www.cnbc.com)  

The core CPI, which strips out volatile food and energy prices, rose 0.3% versus March levels, while the annual core CPI inflation rate eased to 3.6% from 3.8% in March.

In this context, the DXY-dollar index fell to monthly lows of 104-mark last week, while the yields on the 10-year U.S. Treasury note tumbled to nearly 4.35% as traders have increased expectations of a U.S. interest rate cut this year, which is positive for the non-yielding gold and silver.

DXY-U.S. dollar index, 2-hour chart

Gold and Silver are non-interest-bearing assets, so expectations of lower interest rates lend support to both precious metals prices while on the other hand, the high interest rates increase the cost of holding non-interest-bearing assets and give investors more attractive opportunities to invest their cash instead of bullion.

The additional economic and political risks arising from the unrest in the Middle East, the tariff war between the US and China, and the growing risk of the upcoming elections in the US and Europe have prompted many central banks and investors around the world to seek safety in the traditional risk “hedges" of gold and silver, which has further supported their prices.