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

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.

Emerging marketscontinuedto deteriorate this week, with Argentina and Turkey notably effected. Argentina has recently hiked interest rates to 40% in an attempt to stabilise a freefalling 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.

While Fed members have indicated they are staying put on their current ‘dot plot’ rate hike trajectory, at some point they will need to take note of the growing yield disparity.It’s this writer’s view that if the spread continues to widen, and the effects start to begin to spill over into the wider economy, the Fed will be forced to take action andrealign to a more accomodativeglobal policy – all ofwhich is a bullish prospect for the precious metals complex.

Taking a look at the latest fundamental developments, the WGC have released their ETF inflow/outflow data this week, with the report showing strong growth in April.

While the latest data represents the largest monthly inflow since February 2017, more importantly it shows North American and European buyers coming back into the market. Western demand has long been regarded as the key to higher gold pricing, and while this is first significant inflow from the west this year, should this trend continue it has bullish implications moving forward.

From a technical perspective, we can see gold has found significant support at 200 day moving average ($1307), while building positive momentum that looks poised to breakout to the upside.

Should gold push higher from here, key resistance will be at the $1360/$1370 level, an area gold continues to test. (Charts courtesy of Stockchart.com)

In silver we can see the 200 day moving average ($16.81)acting as resistance. However, just like gold, positive momentum is building.

Key resistance for silver will be at $17.30, and then $17.70, with further resistance at the psychological $18 level. Given the bullish technical picture in both gold and silver, and improving COT positioning,means we a likely building a base here, for a more substantial move higher.

The U.S. is meeting with North Korea this weekend, in an attempt to forge a long standing agreement. With the U.S. withdrawing from the Iran nuclear deal this week, it will interesting to see if this impacts the North Korean’s willingness to enter into such a deal. As always the key will be in the detail

In Europe, Italian bond yields continue to climb on the prospect of an anti-establishment coalition coming to power, with the League and 5-star movement party making significant steps towards forming government.Their final policiesare an unknown factor for the markets, but withItaly the 3rd largest economy in Eurozone, investors should take note of the Italian yield, and more importantly yields in the rest of the Eurozone, for signs on how the situation is developing.