Overview: Bernanke’s testimony to the US Congress emphasised that the Fed’s massive bond-buying programme is not on a “preset course” and can be expanded or reduced as conditions warrant. Most observers took his testimony to be dovish, which pushed…
ETF Securities Research
the US dollar lower and lifted the gold price to over $1,300/oz today. Cyclical assets also received a boost from a strong start to the US earnings season and China’s on-target GDP figures. There was a notable rise in investor interest in industrial metal basket ETPs and a reduction in copper short positions, indicating investors
are turning more bullish the cyclical metals. Strong gains in platinum and palladium prices led to some profit-taking. Meanwhile ETP investors sold oil ETPs into the most recent WTI and Brent price spikes.
Investors sold US$54mn of crude oil ETPs last week, indicating ETP investors believe the oil price rally has gone far enough. After WTI gained 3% last week, investors took profit selling US$21mn of WTI crude oil ETPs. WTI has been supported by strong demand from refineries as economic sentiment has been improving and the summer driving season has boosted consumption of gasoline. Brent saw more modest gains of 0.9% and Brent ETP outflows of US$33mn more than reversed the previous week’s inflows.
ETFS Industrial Metals (AIGI) records the largest inflows in over two years on improving sentiment towards cyclical metals. AIGI saw $25mn of inflows while ETFS Short Copper (SCOP) saw $16mn of outflows as investors appeared to take stronger than expected China growth numbers and more dovish comments by Bernanke as supportive of the industrial metals complex. Following the report that China’s 2Q GDP came in at a healthy 7.5%, Chinese research institute Antaike forecasts copper demand will rise 5.5% in 2013. Chinese imports of copper in June were up almost 10% yoy, rising to a nine-month high. In addition, although some of the import demand may have been driven by the copper price differential between the exchanges in London and Shanghai, a tightening in SHFE warehouse stocks indicates demand conditions in China are improving.
Profit taking drives US$45mn outflows from platinum and palladium ETPs. The substantial increase in PGM prices over the past couple of weeks prompted investors to take profit on their positions. While palladium price has been rising on the back of strong auto sales in the US and decreasing ore grades in Russia, expectations of labour unrest in South Africa were behind the increase in platinum price. The fundamentals of platinum appear mixed. European car sales, platinum’s biggest catalyst market, slid to a 20-year low in June and production stoppages in South Africa haven’t had an impact on supply yet. However, given the concentration of platinum supply in South Africa, supply disruptions and political hurdles in the country are likely to remain an important price driver in the coming months.
Gold ETP outflows continue despite the Fed’s assurances that quantitative easing may be enlarged as well as tapered. Although the gold price rose following Bernanke’s testimony, investors trimmed US$63mn of long gold ETPs, apparently waiting for more conclusive signals of the Fed’s intentions and the impact on real rates.
Key events to watch this week. Manufacturing PMIs will dominate the news flow this week and provide investors a gauge for the strength of the global recovery. Strong numbers could provide a tailwind for industrial metals, energy and other cyclical assets. Given that Fed tapering will be so data-dependent, even the flash Markit PMIs for US and China will attract as much attention as the official figures usually do. US housing market data will be closely analysed to asses whether last week’s weak housing starts data was an aberration or the start of a trend.