The resurgence of risk appetite over the past month has seen ongoing rotation in the precious metals sector toward more cyclical exposures. Investors have been increasing palladium positions at the same time as a general clearing out of net long COMEX gold speculative positions occurs…..
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ETF Securities Research
Net long gold positions have hit the lowest levels since December 2008, as investors seem positioned for ‘the worst is over’ scenarios. The gold price remained under pressure as some investors again overreacted to the latest release of the FOMC minutes, believing discussions about the timing of stimulus withdrawal indicates a premature end to the Federal Reserve’s economic support. While cyclical commodities are being favoured the improvement in global economic outlook continues, the stabilisation of gold price around US$1,590oz has attracted bargain hunters, concerned with lingering macro risks and the impact of on going central bank stimulus.
ETFS Physical Palladium (PHPD) records the largest inflow in its history, totalling US$29.8mn, as fundamental outlook stays firm. Platinum Group Metals (PGMs) prices initially rallied last week after mine violence shut Amplats’ South African operations. ETFS Physical Platinum (PHPT) saw the largest inflows in 22 weeks, totalling US$21.2mn. The modest reduction in speculative net long futures positions in platinum contrasted with fresh record palladium net longs and record high ETP holdings for platinum. The fundamental outlook for PGMs remains solid, particularly for palladium. With supply disruptions a persistent concern in South Africa and autocatalyst demand showing signs of recovery, palladium appears well placed for gains. The latest Swiss statistics confirmed market suspicions that Russian palladium stocks might be close to exhaustion, with Russian exports of the metal were zero last month.
Gold ETCs see US$290mn of outflows, the biggest in over 2 years. The resurgence of risk appetite over the past month has seen a 23% reduction of net long COMEX gold speculative positions to December 2008 levels. While the Fed minutes on Wednesday also fuelled the downward momentum, the clear out of gold net longs should provide a more stable base for near-term gains. Bargain hunters have begun to emerge, giving some stability to the gold price around US$1,575oz, and trading turnover on the Shanghai Gold Exchange hit a daily record last week.
ETFS Copper (COPA) records US$13mn of inflows as investors continue rotation into more cyclical assets. Despite the return of China on the market after the Lunar New Year last week, demand for copper on futures exchanges was quite subdued, contributing to a 4.2% drop in prices. As the global recovery gains traction flows into industrial metals ETPs should continue to gain momentum.
Long Oil ETCs record outflows of US$11mn on Eurozone economic outlook downgrade. Long oil ETCs recorded the largest outflows in nine weeks, as the European commission lowered its economic forecast for the area to a 0.3% fall this year, renewing fears that a slowdown in growth might reduce demand for oil.
ETFS Grains (AIGG) registers inflows of US$7.8mn, a 5-week high, on resilient demand from top consumer China . While corn and wheat prices were weighed down by a bearish USDA acreage report, soybeans jumped 4.4% last week. Concerns over the crop prospects in Argentina following lower than expected rainfall helped boost soybean prices. Dockworker protests in Brazil also added to the momentum.
Key events to watch this week: the results of Italian elections will likely be the main focus this week, as the future of Italy’s commitment to austerity plans hangs in the balance. The US automatic budget cuts that go into effect on March 1 will also be monitored closely, as the impact of the cuts could substantially affect the recovery.