“Oil price highest in 3 years, goldready to follow”, by Daniel March

  • U.S. withdraws from Iran nuclear deal
  • Oil jumps past $70
  • Argentina hikes interest rates to 40%
  • S. 10 year disparity
  • Western buying returns to gold

Gold and silver both ended slightly up in a week dominated by heightening geopolitical news, weakening inflation data, and emerging market concerns.With gold closing the week at $1,318 (up 0.28%), €1,104 (0.37%), and £973 (0.2%).

In sterling, gold was up strongly on Thursday following the BOE’s decision not to raise rates, and from the weaker than expected industrial production data.

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On Tuesday the U.S. pulled out a nuclear deal with Iran with oil jumping on the news, pushing past $70 for the first time since November 2014. In other markets, the move was less pronounced, prompting suggestions the move in oil was more over concerns of losing production (at a time of already falling crude inventory), rather than from the geopolitical event itself.

However, with middle east tensions rising by the day, the geopolitical risk remains extremely high. With the main question remaining, will gold soon follow oil’s move higher as investors seek protection in the world’s premium safe haven asset?

Economic data this week came in worse than expected, with inflation readings of 0.1% vs consensus of 0.2%. The market was initially unmoved following the PPI release on Tuesday, but once CPI confirmed the prospect of weakening inflationary pressures on Thursday, both gold and silver reacted along with the rest of the commodities sector, including platinum, palladium and copper, all ending the day notably higher.

Stocks were one of the best performing assets this week, with U.S. indices up between 2-3%, with investors in the short-term moving back into risk assets. The U.S. dollar ended the week flat (up 0.02%), giving back early weak gains from the miss in inflation, and talk of ‘profit taking’. Yields, like the dollar, started the week strong but ended the week down 0.27%. Full weekly performance, courtesy of Finviz.com. (https://finviz.com/futures_performance.ashx?v=12)

Emerging markets continued to deteriorate this week, with Argentina and Turkey notably effected. Argentina has recently hiked interest rates to 40% in an attempt to stabilise a free falling peso,and is currently seeking assistance from the IMF to avoid outright default.Turkey are taking similar measures, albeit not so aggressive, but still in attempt to fight soaring inflation at 11%

A strong U.S. dollar, and bond yield (when compared to global peers), is the main catalyst behind the deteriorating situation. During the expansionary period, following the 2008 financial crisis, low interest rates and an abundant supply of fresh Central Bank liquidity allowed easy money to flow into the emerging markets.But as U.S. yields went up, so too did the funding costs, making emerging market investments a less attractive prospect, causing capital to flow out of these markets and back into the ‘perceived’ safety of a 3% return in the U.S.

Highlighting the disparity in global yields,only Greece, Mexico, India and Brazil currently pay more than the U.S. to service their 10 year debt – quite a startling statistic for the world’s reserve currency.

https://tradingeconomics.com/bonds

While Fed members have indicated they are staying put on their current ‘dot plot’ rate