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Commodity ETP Weekly: Gold price surges on debt deal

Cyclical  commodities broadly rose after the US  passed a bill to reopen the government and suspend  the federal debt  ceiling to 7 February 2014. With the Treasury now able to continue borrowing to fund expenditure, markets are more…

    ETF Securities Research

    optimistic that a global recovery will not be  derailed.  Adding to positive sentiment, Chinese Q3 GDP figures confirmed that growth picked up after a pause in the middle of the year. Counter-intuitively, gold staged its biggest one-day  rise in a month  following the agreement as shorts were covered and  a weaker dollar helped drive the price higher.    A number of delayed data releases will now be published this week, including the much-awaited non-farm payrolls, while the World Agricultural Supply and Demand Estimates (WASDE)  report for October has been cancelled,  extending investor uncertainty about crop progress at the tail-end of the US corn and wheat harvest season.
    Physical gold ETPs saw US$106mn of outflows in advance of the debt agreement. ETP investors appeared to look through US default risk, betting that a debt deal would go through. Counter-intuitively the gold priced rallied after the announcement as US T-bill rates and the dollar weakened and futures market investors who were heavily short covered their positions. 

    ETFS Palladium Trust  (PALL)  sees $21mn of outflows on profit-taking. Platinum and palladium prices rose 2.5% and 2.6% respectively last week, propelled by the debt ceiling agreement and Chinese passenger auto sales which rose  21% y-o-y in September.  There was a net outflow of US$2.2mn from platinum ETPs, as investors locked in the price gains.  For now the engine behind  platinum group demand  growth is still  the US and China.  Meanwhile another death of a union official close to  Lonmin’s Marikana platinum mine  provided a reminder of how union rivalry could hamper production this year.
    ETFS Daily Leveraged Natural Gas (LNGA) saw US$3.8mn of outflows on profit taking. Natural gas prices rose 0.9% as inventories tightened in the run-up to the seasonal peak demand period. Inventories were 4% lower in the first half of October this year than the same period last year and EIA has forecast temperatures in the US Northeast to be 3% colder this year, which will drive demand for winter fuel higher. Some investors may have chosen to take profit before the contango during monthly futures roll erodes their gains.
    US$3.3mn of outflows from crude oil ETPs driven by weakness in Brent and WTI benchmarks. WTI fell close to $101 a barrel on seasonal weaker refinery demand. Both WTI and Brent benchmarks dropped as there were signs of progress on Iran’s nuclear programme discussions in Gevena, which could eventually relieve sanctions on the country’s oil exports.
    Uncertainty trims US$12.6mn from ETFS Longer Dated Agriculture (FAGR). With USDA data being delayed and in some instances cancelled, investors trimmed their exposure to agricultural broad baskets locking in the price gains over the week.
    Key events to watch this week. After a dearth of official data, the US non-farm payrolls numbers that will be released tomorrow will likely attract even more attention than usual. Markit PMI manufacturing readings for China and the US will be closely watched as investors assess the impact of the US budget and debt negotiations on global business sentiment.


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