Strong June US payroll numbers last week sent precious metals lower as US bond yields and the US dollar surged. Forward guidance offered for the first time by the European Central Bank and the Bank of England (the latter under new leadership), made it clear that they don’t foresee tightening monetary conditions any time soon. Changing central bank expectations strengthened the US dollar, adding downward pressure on most commodity prices. Oil was an exception, with violence in Egypt increasing the supply risk-premium on both WTI and Brent. Earlier in the week, Portugal’s difficulty in establishing a stable government was a reminder to investors that the euro area crisis is still far from resolved. This sent demand for gold ETPs higher at the beginning of last week. Given continued risks around Portugal’s political situation and this week’s European deliberations on Greece’s on-going funding issues, further haven buying cannot be ruled out….
ETF Securities Research
Gold ETP outflows continue as strong jobs reignite fears of Fed early exit. The gold price dropped last Friday, after non-farm payroll data showed the US job market added 195K positions in June, 34K more than expected. Although in the near-term it is difficult to see any immediate catalysts for a sustained rebound in the gold price, tails risks are becoming more prominent. The political crisis in Portugal reawakened fears of a potential worsening of the European crisis as more peripheral countries struggle with austerity measures. If the situation in Europe deteriorates, gold could potentially benefit from a heightening of risk aversion. However, gold will likely face headwinds as long as US interest rates continue to rise, inflation expectations continue to fall and the US dollar continues to strengthen. Meanwhile, ETFS Physical Palladium (PHPD) received US$1.2mn of inflows as better than expected US auto sales in June improved the demand outlook for the metal.
Long copper ETPs see US$97mn of outflows, the largest in 10 weeks. Copper price rebounded from a 3-year low last week on supply tightness, prompting some investors’ to cut positions as China growth fears linger in the background. Mine shutdowns in Indonesia and limited delivery from exchange-registered warehouses put pressure on supply, providing support to prices. However, a rebound in the US Dollar on higher than expected US jobs data, coupled with news of an imminent start to Rio Tinto’s Oyu Tolgoi mine, has again put downward pressure on the copper price. If growth fears about China subside, the copper price is likely to be a key beneficiary.
Recent price hike prompts US$13mn of outflows from WTI oil ETPs. The Brent-WTI spread hit a two and a half year low last week as WTI rose to a 14-month high, trading above US$104/bbl. Lower than expected US inventories, coupled with a tense situation in Egypt, improved the outlook for oil. Although production flowing through the Suez Canal has not been threatened yet, supply risks are likely to continue support oil prices in the near-term. Concerns over a slowdown in the Chinese economy weighed on Brent ETPs last week, prompting US$20mn of outflows.
ETFS Leveraged Natural Gas (LNGA) sees inflows as the White House renews push on climate policy. The Henry Hub natural gas spot price jumped 3% last week and there were US$5mn of inflows into natural gas ETPs, as US President unveiled new initiatives to reduce carbon emission that could favour natural gas, and Eastern US temperatures remained elevated.
Key events to watch this week. Today the Eurogroup is expected to reach a deal with the Greek government on the next tranche of bailout funds. Investors will also be poised for news from Portugal and Egypt as they each grapple with establishing new leadership.