Investors flocked to safe haven assets including gold, silver and the US dollar, as Western nations debated their response to an alleged chemical-weapons attack in Syria. Fears of supply constraints also boosted oil prices…..
ETF Securities Research
Although Syria is a relatively small oil producer, global supplies remain tight withLibyan oil output already being constrained. Gold and oil prices eased by Thursday last week when the UK parliament confirmed it would not back the strikes, but investors remain on tenterhooks for the outcome of the US Congress’ vote on its potential participation regarding military action in the region. Cyclical commodities were generally down last week with investor confidence dented by the talk of military strikes.
Despite US Q2 GDP being revised upwards significantly, US consumer confidence beating expectations and the German business climate displaying strong improvements, investors are waiting for the Fed’s next assessment in two weeks’ time. Some cyclical assets received a boost this week with the release of Chinese manufacturing PMI’s that confirmed the on-going rebound of the manufacturing sector.
Defensive investors drive US$69.1mn into physically-backed gold ETCs, marking the strongest weekly flows since the end of March. Gold prices rose 2.3% last week, as investors became re-acquainted with the metal’s insurance characteristics. Some investors returned to building positions in gold after temporarily selling when prices fell sharply in April and June. Silver rose 4.5% last week, but investors trimmed their positions in long silver ETPs by US$5.3mn after strong buying in previous weeks. Historically, gold and silver prices rose sharply during the first few weeks of both Gulf wars and the 9/11 attacks in New York. While prices moderated relatively quickly, they rebounded once again towards the end of the conflict.
Largest inflow into ETFS Brent (OILB) in 18 months. US$32.0mn flowed into OILB, the highest weekly inflow since February 2012, as Brent oil prices rose 4.8% on the back of potential military action. Prospective strikes on Syria have increased fears of tight oil supply as Libyan output has also fallen. While Syria is a relatively small oil producer, a military strike could destabilise other parts of the Middle East, a region that has demonstrated political fragility in recent years.
Outflows reach three month highs of US$5.0mn from long natural gas ETPs. Natural gas prices rose 2.1% last week, on the back of hot weather conditions in the US, prompting profit taking from natural gas ETPs. Rising temperatures has seen increased demand from power consumption in the US for applications like air conditioning.
Dryer weather generates highest inflows in six months into ETFS Agriculture (AIGA). Most agriculture prices gained last week, prompting inflows of US$4.7mn, the highest weekly amount since late February.
Dryer, hotter weather in the US Midwest sent corn and soybean prices 2.0% and 8.2% higher respectively. While some investors bought diversified agriculture baskets to access the weather-related price momentum, others took profits, selling US$3.9mn of long soybean ETPs.
Investors withdraw US$17.7mn out of ETFS Industrial Metals (AIGI) as confidence wavers. Discussions about strikes on Syria last week had led some investors to pare back on their risk asset holdings. Industrial metal prices generally fell along with equities. However, hard data continues to show a global economic recovery remaining on track, and the improvement in the Chinese economy will buttress demand.
Key events to watch this week. As investors digest newsflow surrounding developments in Syria and the Middle East, a torrent of economic data will be released. Central bank meetings of the Euro area, the UK and Japan will be closely monitored for indications of a change in monetary settings. The release of US jobs data for August will be crucial for the upcoming Fed meeting and expectations of bond purchase tapering. Meanwhile Eurozone growth and industrial production will give clarity on whether its recovery is progressing.