Commodity ETP Weekly: Gold Outflows Continue as Strong US Payrolls Reignite Fears of Fed Early QE Exit

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.



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